AN INTRODUCTION TO MANAGEMENT
CONSULTANCY
AN INTRODUCTION TO MANAGEMENT
CONSULTANCY
Marc G. Baaij
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DEDICATION
For Ellen and Sophie
CONTENTS
About the Author
Online Resources
Acknowledgements
Preface
Endorsements
1 The Management Consultancy Phenomenon
Defining management consultancy
The reasons for hiring management consultants
The roles of management consultants
The forms of management consultancy
The results of management consultancy
Conclusion
Summary
2 The Management Consultancy Industry
The Second Industrial Revolution and the birth of
management consultancy
The Third Industrial Revolution and IT management
consultancy
The Fourth Industrial Revolution and productized
consultancy
The growth of the management consultancy market
Conclusion
Summary
3 The Management Consultancy Firm
The organization of a professional partnership
The economics of a professional partnership
The managed professional business
New developments
Conclusion
Summary
4 The Management Consultant
Reasons for applying
Reasons for hiring
Recruiting
Learning and development
The work of a consultant
Career development
Conclusion
Summary
5 Selling a Consultancy Project
The marketing of the firm
The consultative approach to selling a project
The proposal
The flywheel of management consultancy
Conclusion
Summary
6 Identifying a Client’s Real Problem
Clients’ questions
Consultants’ critical thinking
Balancing the problem-solving approach
Understanding a client’s context
Understanding a client’s real problem
Understanding the stakeholders
Distinguishing between various types of problems
Developing a problem statement
Understanding opportunities
Conclusion
Summary
7 Structuring the Real Problem
Multi-level problem-solving
The principles of structuring
Consultants’ models for problem-solving
Sequential Analysis problem-solving
Conclusion
Summary
8 Designing and Conducting Analyses
Developing hypotheses about the client’s problem
Designing analyses for hypothesis testing
Developing a work plan
Collecting the data
Creating the data
Analysing the data
Data-analytical thinking
Presenting the analysis results
Conclusion
Summary
9 Developing a Solution
Multi-level solution development
Good solutions
Consultants’ models for developing solutions
Frameworks for solutions
An indirect process for developing solutions
Developing solution hypotheses
Testing solution hypotheses
Accepting or rejecting solutions
Selecting the best solution
Conclusion
Summary
10 Structuring a Presentation
The importance of presentations in consultancy
Pitfalls in presentations
Understanding the audience
Structuring the presentation of a solution
Structuring a solution-driven presentation
Structuring a problem-driven presentation
Designing slides
Delivering presentations
Conclusion
Summary
11 Preparing for Implementation
Setting up an implementation project
Assessing the client’s implementation gap
Structuring implementation gaps
Assessing client’s readiness for implementation
Planning an implementation
Conclusion
Summary
12 Facilitating an Implementation
The consultants’ role in implementation
Setting up an implementation office
Scheduling the actions
Managing an implementation
Evaluating a project
Closing a project
Conclusion
Summary
Index
ABOUT THE AUTHOR
Marc Baaij
is an Associate Professor of Strategic Management at the Rotterdam
School of Management (RSM) at the Erasmus University Rotterdam
in the Netherlands. Previously he worked for the Boston Consulting
Group (BCG) as Manager of Research and Strategy Consultant.
Marc specializes in methods and techniques for strategy
development and implementation, with a focus on stakeholder
management and strategic foresight development. He has written
professional books and scientific articles on strategic management,
management consultancy, and structured problem solving. Besides
teaching bachelor, master, and MBA students, Marc also provides
open and in-company training in Structured Problem-Solving and
communication for managers, consultants, and other business
professionals. He also serves as a soundboard for managers in
cases of strategy development and implementation. Marc holds a
Master’s degree in economics and is a PhD in strategic
management.
ONLINE RESOURCES
An Introduction to Management Consultancy, 2nd edition is accompanied by online
resources for instructors to help support teaching. These resources are available at:
https://study.sagepub.com/baaij2e
FOR INSTRUCTORS
Easily integrate the chapters into your weekly chapters with the PowerPoint
slides created by the author.
Help support discussions and test understanding of the text with the help of the
teaching notes, further reading and additional exercises and questions in the
teaching guide.
ACKNOWLEDGEMENTS
I would like to thank the many people without whom it would not
have been possible to write this book. Like in the first edition, Nathan
Simon, partner of Kennedy Research Reports, was willing to share
his valuable insights and data on the consultancy industry. I am
grateful to Nathan and his colleagues Tom Rodenhauser and Lasse
Pitkaniemi for sharing their extensive industry knowledge. My
conversations with Larry Zeenny, owner of Consultancy.org, were
also valuable in charting the current developments in management
consultancy. For the running case, I benefitted greatly from the
feedback of consultancy and industry experts. Consultants Daniël
Horn, Gillis Jonk, Dominik Möchel, and Erik-Jan Quik provided
constructive comments on previous versions of this case. I would like
to thank Professor and consultant Muel Kaptein for his thoughtful
review of a previous version of the manuscript. The manuscript also
benefitted from the valuable feedback from consultant and lecturer
Austin Chia and entrepreneur in the field of automated consultancy
Jan van de Poll. I would like to thank lecturer and speaker Thijs
Boogert for sharing his relevant experience and insights about
implementation of advice. In addition, I am grateful to the
anonymous reviewers for their thoughtful comments. Teaching the
consultancy methods to students and applying the methods in my
own consultancy practice also helped me further sharpen the book’s
content. That is why I am also grateful to my students and clients for
their contribution. Without the invitation of editor Matthew Waters,
this new edition would not have happened. I am thankful to him and
the team from SAGE for their professional support of the process. I
would also like to thank my daughter Sophie for reading the
manuscript critically and providing helpful feedback. Finally, I was
happy with the patience and support of my wife Ellen because even
if it is ‘just’ a new edition, the writing took more time than I thought.
PREFACE
People may be interested in management consultancy for various
reasons. For example, they may work with consultants and want to
better understand what consultancy is about. Others may aim to
become a consultant themselves and want to prepare for a
consultancy position. There may also be a third group of people who
would like to learn the valuable problem-solving methods of the
world’s leading consultancy firms.
Finding such information about consultancy and their methods can
be difficult for outsiders. If you key in ‘management consultancy’ on
Google, you will get over 190 million results! But where do you start
in this overwhelming supply of information? Many pieces only
provide a small portion of the desired information. The offer is
fragmented. In addition, a lot of information is very brief and lacks
illustration. Wouldn’t it be helpful if all the necessary knowledge
about management consultancy was integrated and worked out to a
sufficient level of detail and illustrated with concrete, practical
examples?
This book aims to provide such an introduction to management
consultancy. The first four chapters give a multi-level perspective on
consultancy: the phenomenon, the industry, the firms, and the
people. In the remaining eight chapters, we go through the entire
consultancy process from acquiring a project, executing the
assignment, up to and including evaluation and relationship
management. Recognizing that there are different types of
consultancy, we focus on consultancy as solving problems for
clients. Within this, we focus on the proven successful methods of
the world’s leading consultancy firms. Since outsiders do not have
access to the vast experience and knowledge these firms have, we
slightly adjust these methods to be suitable for people without
experience.
Each chapter begins with an introduction and an overview of the
main learning objectives. At the end of each chapter, readers will find
a conclusion, summary, reflection questions, and a running case.
The book’s companion website provides support materials, such as
exercises, templates, and web links to relevant websites.
Additionally, the site offers, on an exclusive basis, specific materials
for lecturers.
ENDORSEMENTS
‘This book is essential for those who want to be a
successful management consultant: it offers an accessible
and state-of the-art treasure trove of concepts, methods
and tips for becoming a successful management
consultant.’
Muel Kaptein, Professor in Management,
Rotterdam School of Management, Erasmus
University, and partner at KPMG
‘This book provides a thorough introduction to management
consulting as a role, industry, workplace and practice. The
detailed and insightful presentation of the management
consultant’s tool-box and problem-solving methods – from
how do define the problem to designing the slides to
present the recommendations – will be an invaluable
resource for every aspiring management consultant.’
Andreas Werr, Professor of Management,
Stockholm School of Economics
‘This book is an excellent introduction to management
consulting for students at all levels as well as consultants
and clients. It is highly accessible and comprehensive,
covering the basics, but also advanced techniques and the
latest developments. A real achievement.’
Andrew Sturdy, Professor of Management,
School of Management, University of Bristol
‘I thought the first edition was fabulously comprehensive
and resourceful for my graduate level course on
management consulting. This new edition is even better! It
is leaner, flows better, simplifies the cases, improves the
graphics, and offers suggestions to the consulting neophyte
while going beyond the superficial. I can’t wait to use the
new edition once made available!’
Paul Joyce, Executive Director, Executive
Leadership Institute, McColl School of
Business, Queens University of Charlotte
‘Excellent resource for the professional, academic or
entrepreneur starting a consulting practice. A must have
resource to guide you in successful consulting practices
and processes! Baaij provides a clear blueprint to effective
consulting.’
Jeffrey Moore, Professor of Management,
College of Business, Anderson University
‘This book will teach you the basis of consulting. Its wide
scope ensures learning about the content side – the
importance of structured problem analysis – as well as
learning about the process of consultancy, from selling
projects to considering implementation. I will happily use
this as a resource for my university students.’
Jacomijn Klitsie, Senior Lecturer, Rotterdam
School of Management, Erasmus University
‘There are very few books specifically devoted to the field of
Management Consulting that are able to capture the
complexity of the industry in a way that learners can easily
understand. Marc’s book achieves just that while
addressing the major challenges the industry faces around
ethics, professionalization and regulation. We are all on a
lifetime learning journey, whether we are consultants or
students and this book is an essential companion along the
way.’
Alan Price, Management Consultant,
Programme Director, Swansea University
School of Management
‘This book is an excellent, complete and thoughtful
overview of the ins and outs of Management Consultancy.
Marc Baaij combined his practical experience and
academic rigor to create a useful and engaging introduction
to the consultancy business. A great guide that will help
students navigate in the profession of giving advice.’
Ard-Pieter de Man, Professor of Consulting,
Vrije Universiteit Amsterdam, and
boardroom consultant
‘Marc Baaij’s book provides an excellent introduction to
management consultancy, not only for those of you who
would like to work as a consultant, but also if you are a
client or if you want to learn valuable problem-solving skills.
The first chapters give a comprehensive overview of the
business of management consultancy. Most of the chapters
however break up the entire cycle of management
consultancy and discuss useful methods for each step.’
Aswin van Oijen, Associate Professor of
Strategy and Organization, Tilburg School of
Economics and Management, Tilburg
University
‘An excellent text for any student studying consultancy for
the first time. The text provides an industry perspective to
the sector to give students a “real-world” understanding of
the nature, breadth and depth of the industry. The case
studies provide specific “real-world” examples for students
to help them contextualise learning and position the
knowledge. Building from an outside-in perspective, the text
draws the reader into the sector and builds their knowledge
and critical understanding of the industry, its value, purpose
and issues, along the way. If you are looking for a great
primer on the subject to help build knowledge and
understanding of the wider concepts and provide industry
knowledge and practical examples, then this is place to
start.’
Paul Matthews, Senior Lecturer in Strategy,
The Gloucestershire Business School,
University of Gloucestershire
‘The book forms a fascinating reading for anyone who is
looking to develop their ability to think and solve problems
in a structured way. It is a must-read for a reader with a
strong interest in the management consultancy industry as
it does not only provide an overview of the industry, but also
insights towards how someone can dive into the problems,
break down key assumptions and prioritize issues.’
Dr Panagiotis Stamolampros, Assistant
Professor in Business Analytics, Centre for
Decision Research, Leeds University
Business School, University of Leeds
‘I highly recommend Marc Baaij’s book to anyone who is
keen to learn about the profession and practice of
management consultant. The book has a contemporary
focus and strikes a good balance between theory and
practice. It is an invaluable reference for students, teachers,
and practitioners.’
Dr. Austin Chia, Management Consultant,
KPMG Australia, and Research Fellow at The
University of Melbourne
‘A comprehensive treatment of management consultancy,
this book addresses both what management consultancy is,
what consultants do, and lifts the lid on the methods they
use to achieve their results. It is an excellent resource for
students interested in learning about the industry and
pursuing a career as a management consultant. The use of
cases at the end of each chapter is a very effective way for
students to deepen their understanding and apply the
concepts. For lecturers, this represents a go-to resource for
all aspects of this topic area.’
Chris Owen, Senior Teaching Fellow, Aston
Business School, Aston University
1 THE MANAGEMENT CONSULTANCY
PHENOMENON
INTRODUCTION
You may find management consultancy interesting and consider becoming a
consultant yourself. Perhaps you have family or friends in consultancy who have
inspired you. Maybe you have seen stories in the media about successful
consultants. You may also be attracted to consultancy because of the exciting work,
the steep learning curve, the prestige of a top firm, or maybe you simply want to
make a lot of money. After you graduate, you may think about applying for a job at a
consultancy firm. You may prefer the largest firms such as the Big Four (Deloitte,
PwC, EY, and KPMG), Accenture, or ‘MBB’ (McKinsey, BCG, and Bain). Still, you
may also like to work at a small boutique firm specializing, for example, in digital
transformation.
But before you make a move, you want to understand better what management
consultancy is. Consultancy is a popular term, but different people have different
definitions. This chapter aims to explain the management consultancy phenomenon.
First, we outline the key characteristics of management consultancy and propose a
definition. In the second section, we discuss the various reasons for hiring
management consultants. Our third topic is the different roles of consultants. Fourth,
we describe several forms of consultancy. After that, we reflect on the results of
consultancy work. The chapter ends with a conclusion, a running case, a summary
and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Identify the distinctive characteristics of management consultancy
Critically reflect upon the various reasons for hiring management consultants
Distinguish the functionalist and the critical perspective on management
consultancy
Distinguish different forms of consultancy
Identify and assess different roles of management consultancy.
DEFINING MANAGEMENT CONSULTANCY
Characteristics
You may ask: What is management consultancy? It may surprise you, but there is no
commonly accepted definition. To understand management consultancy, let’s take a
closer look at its main characteristics.
Client management
As the name indicates, management consultancy is directed at managers. The clients
of consultants are managers. These managers may range from the top management
to the first-line management. Their organizations can be commercial businesses and
‘non-profit,’ such as governments, hospitals, or schools. The spectrum of
organizations extends from small and local to large and global.
Recommendations
The managers who hire consultants have in common that they have the power to
make decisions on behalf of their organizations. Management consultants provide
recommendations, and clients make the decisions. Consultancy is not about making
decisions on behalf of clients. Decision making remains the sole responsibility of the
client. Management consultants aim to improve their clients’ decisions.
Management consultancy is about the business decisions of managers. It is about
solutions to the business problems and opportunities of the client organization.
Managers may need advice not only for problem-solving but also for identifying and
exploiting opportunities. The client’s problems and opportunities can be limited to
individual departments, such as human resource (HR) management, finance,
information technology (IT), or operations. Such issues call for HR consultancy,
financial advisory, IT consultancy, or operations consultancy. Still, they can also
extend to the entire organization of the client. An example is a declining competitive
advantage that calls for strategy consultancy. In general, consultancy is typically
about the big problems and opportunities that keep the managers awake at night.
Managers do not hire consultants for small issues.
Not about personal problems
Management consultancy is not about decisions on a client’s personal problems but
on business issues. We emphasize that management consultants only provide
recommendations for business decisions. For example, to solve declining sales,
consultants may advise the client to improve their account managers’ training and
give them better incentives. Figure 1.1 visualizes the relationship between consultant
and client. A consultancy project is always a collaboration between the consultant
and the client. Both parties have their input into the project.
Figure 1.1 The relationship between consultant and client
Independence
Management consultants must be independent of their clients. They should not have
an equity stake in their clients, nor vice versa. Besides, consultants should not
depend on one specific client. For example, if consultants get most of their revenue
from one single client, the consultants cannot afford to lose the account, and the
client gains power over the consultants.
The consultant’s independence is necessary for objective and impartial advice.
Independence allows the consultant to provide sound advice for the client’s
organization even if the client may not want to hear it. For example, to reduce an
industrial client’s production downtime, the consultant concludes that reorganizing the
client’s factory is necessary. At the same time, client management prefers to leave
things as they are.
Independence also allows the consultant to resist any client’s attempts at
manipulation. For example, the client wants the consultant to recommend a mass
layoff of office workers, even though it is not an effective solution to the client’s
problem. More seriously, the client wants to involve the consultant in unethical
practices. In such cases, the consultant should be able to refuse to cooperate.
Internal consultants
Management consultancy is not only about external advisors, that is, people outside
the client organization. Some (large) organizations have internal consultancy units
that support the managers in that organization. But the top management must ensure
that the internal consultants can provide independent advice to their internal clients.
Ensuring independence is especially challenging when consultancy positions are
temporary and the internal consultants, after some time, need to move to other (nonconsultancy) positions in the organization. Then they become part of departments
that used to hire them for advice.
Projects
Both external and internal management consultancy takes place on a project basis.
Clients hire consultants not for an indefinite period but for a limited, predefined
period. The period generally varies from a couple of weeks to a couple of months.
During that time, the consultants analyse the client’s problem, develop solutions,
advise, and, if requested, help implement the recommended solution. After providing
these services, the consultancy project ends. However, the client may hire the
consultants again for another project. The consultants may return to the same client
from time to time for a new project. As a result, the consultants develop a (long-term)
relationship with the client. Consultants strive to build such relationships because
selling projects to existing clients is much more efficient than acquiring new clients.
Business
A consultancy project is a business transaction between the client and the consultant.
The client pays for the consultant’s services. But some consultants also do projects
for charities for free as a form of doing something good for society. Today, many
consultancies have a broader purpose beyond business success and creating value
for clients. Their purpose includes making a positive contribution to society. The
corporate social responsibility of these consultancies also contributes to their public
image, which helps them to attract clients and consultancy talent.
But some consultants also do projects for charities for free as a form of doing
something good for society
The large and global management consultancies are best known. Firms like the Big
Four and Accenture employ hundreds of thousands of consultants worldwide. These
organizations offer many different services to a broad range of client industries. But a
management consultancy firm does not have to be enormous. Most management
consultancy firms are small or medium-sized. Such consultancies typically focus on a
narrower range of services and sectors.
Moreover, the overwhelming majority of consultants are solo practitioners. They are
small entrepreneurs without employees. These individuals typically specialize in one
specific service or industry, but there are also generalists. Consultancy does not have
to be a full-time position. Many business schools have consultancy clubs for students.
Students can then gain valuable experience with consultancy in addition to their
studies. Some lecturers may consult as a side job.
Action point
Join a consultancy club and gain practical experience during your studies.
A service
Historically, management consultancy is a service delivered by people, and therefore
labour-intensive. Later we will discuss a new trend towards consultancy as a product.
But the traditional consultancy service model means that projects require a lot of
hours to provide advice. Consultants generally work long hours and should be able to
function under time pressure. Consultancy as a service also means that consultancy
is intangible or immaterial. Consultants have no physical product to show to their
clients. Reports and PowerPoint presentations are the only physical outputs that
consultants can offer.
The role of the client
In the case of physical products, we can clearly distinguish between a producer and a
customer. For example, Apple produces smartphones, and its customers use these
phones. In services, that distinction between producer and user may be hard to
make. In management consultancy, clients play an essential role in solution
development. Consultants typically cannot provide their advice without interaction
and cooperation with their clients (see the arrows in Figure 1.1). Management
consultants need their client’s data and knowledge. Therefore, consultancy is a form
of co-creation; clients and consultants together create the solution to the clients’
issues.
Therefore, consultancy is a form of co-creation; clients and consultants together
create the solution to the clients’ issues
Defining consultancy as advice
As stated before, various definitions of management consultancy exist. We aim to
develop a synthesis of the existing classifications. A common element in these
definitions is helping managers. The question arises: what specific type of assistance
may managers request from consultants? Managers turn to advisors for help with
their organization’s issues (business problems and/or opportunities). The consultants
can identify and diagnose the client’s issue. For example, a client has a factory with
high production downtime. The consultants discovered that quality problems of raw
materials cause the high downtime.
The advice
Based on their diagnosis, consultants develop a solution for the client’s issue. In the
example, the consultants recommend that the client works closely with the raw
material supplier to ensure the materials’ consistent high quality. As stated earlier, the
client managers remain responsible for making the decision about the
recommendation. The provision of advice is an essential service of consultants. Our
definition of management consultancy, therefore, concentrates on advice-giving.
Management consultancy is a knowledge-intensive service that independent
business professionals (consultants) provide to the managers of the client
organizations. It consists of objective advice on management’s decisions regarding
the solutions to their organization’s issues.
Including implementation assistance
If the client managers accept the advice, they decide to implement the consultants’
recommended solution to their issues. Only action will enable clients to solve these
issues. Therefore, implementation alone allows the client to achieve their desired
results. The client may ask the consultants to help with executing the solution.
Therefore, a broader definition of management consultancy may include both
developing recommendations and assisting in implementing these solutions.
Assistance with the managers’ implementation tasks
Client managers may approach consultants for advice and assistance with the
implementation of the recommendation. Just as the guidance refers to the client
managers’ decisions, the implementation assistance refers to the client
management’s role in carrying out the advice. Examples of consultants’
implementation assistance are designing the implementation plan, providing the
plan’s communication, monitoring the implementation’s progress, and advising client
management on any necessary adjustments to the solution implementation. A broad
definition of management consultancy may look like this:
Management consultancy is a knowledge-intensive service that independent
business professionals provide to the managers of the client organizations.
It consists of:
1. Advice on the client management’s decisions regarding the solutions to
their organization’s problems and opportunities
2. Assistance with the client managers’ tasks regarding the
implementation of these solutions.
Business consultancy and business services
We distinguish between the tasks of the client’s managers and those of the client’s
professionals in the implementation. The non-managerial functions of these
professionals are essential to the implementation’s success. Examples of such nonmanagerial tasks are the development of IT systems and the training of the system
users. These non-managerial tasks do not belong to the domain of management
consultancy. Management consultancy is advice and assistance regarding the
managerial tasks regarding implementation. Providing advice and assistance for
these non-managerial tasks is business consultancy.
Advice is a necessary part of consultancy. Some service providers offer assistance
without advice. Assistance without advice is not a consultancy service, but a business
service. Figure 1.2 compares the various types of services.
Assistance without advice is not a consultancy service, but a business service
Figure 1.2 The comparison of management consultancy and other services
Various types of consultancy firms
We have already stated that management consultancy is more than the gigantic
management consultancy firms operating globally, employing hundreds of thousands
of consultants. Most consultants have a solo practice or work for small and mediumsized consultancy firms.
There are ‘pure’ management consultancy firms that only provide services that fall
within our definition: advice and assistance with the managerial implementation tasks.
Besides, various consultancy firms have expanded into business consultancy and
business services. This extension of offerings was often done at the clients’ request,
who asked their consultants whether they could do more than advise and assist with
the managerial implementation tasks. For example, some clients may request the
consultants to carry out the implementation tasks themselves. Some very large
consultancy firms combine management consultancy with business services. An
example is Accenture which advises clients and develops and implements IT systems
for their clients. Moreover, the clients can also outsource their business processes to
that consultancy.
Action point
Before applying to a consultancy, check their website to determine what services they
offer.
THE REASONS FOR HIRING MANAGEMENT
CONSULTANTS
Hire a consultant or ‘do-it-yourself’
You may ask yourself: Why do managers hire consultants? We focus on hiring
consultants who are external to the client’s organization. Let us first consider the socalled make-or-buy decision. We defined management consultancy as advice on the
client organization’s issues. ‘Make’ in this context means that clients solve their
problems and seize their opportunities without the support of (external) consultants.
‘Buy’ means hiring a management consultant. Let us take a closer look at an
important reason for the ‘make’ decision.
Client managers with a business education
A substitute for (external) management consultancy is that clients solve their
problems themselves and implement their solutions without external consultants’
help. The client managers may do the work themselves because they have good
business knowledge and skills. Business studies, such as the MBA, have resulted in
well-trained managers who can solve complex business issues themselves. The
client managers may also hire people in permanent positions to provide the
consultancy services. We have already discussed the internal consultants. Former
external consultants, the so-called ‘alumni’, of the renowned consulting firms are
often sought-after candidates for such positions.
Business studies, such as the MBA, have resulted in well-trained managers who can
solve complex business issues themselves
Official reasons for hiring consultants
We distinguish between two types of reasons why clients hire consultants: the official
reasons and the unofficial ones (see Figure 1.3). Whereas the clients are open about
the former grounds (the white callout boxes in Figure 1.3), they are secretive about
the latter (the grey callouts).
Figure 1.3 The official and unofficial reasons why clients may hire consultants
Let us start with the official hiring reasons. They are about the client’s need for advice
and assistance with solving business problems or identifying and seizing business
opportunities. By providing guidance and support in these areas, the consultants help
to improve their client’s organizational performance (profit and/or non-profit
outcomes). The question arises: Why should client management hire external
consultants instead of solving these problems themselves? We distinguish between
several reasons.
First, the issue may be too complex for the client. For example, the client wants
to innovate their business model using digital technology. Management
consultants are professional problem-solvers. They do problem-solving as a
profession. Because it is their business, the consultants gain much more
experience in problem-solving than clients. The consultants do nothing but
solving problems. Moreover, the consultants have proven methods and tools for
problem-solving (see Chapter 6).
Second, the issues may be new to the client or even new to the client’s industry.
For example, it is the first time that a client will make a cross-border acquisition.
Still, the consultants may have solved similar problems in other firms or
industries. Consultants may translate such solutions from other firms or
industries to their client’s situation. Then the client can benefit from the
consultants’ experience with that type of issue. Because of their experience,
consultants can develop solutions much faster and more efficiently than their
clients.
Consultants may translate such solutions from other firms or industries to their client’s
situation
Third, clients may be interested in a fresh and broader perspective from ‘the
outside’. Especially if the client organization is inward-looking, an outside
viewpoint is valuable. For example, the management team consists of people
who have only worked within this organization. Management consultants can
develop a more comprehensive view by working with a wide range of
organizations and sectors.
Fourth, clients may look for independent advice. The consultants are
independent of the political factions within the client organization. If the client is
internally divided, the consultants may add value by providing independent,
objective advice acceptable to all political sections. For example, some members
of the management team want to invest in digital technology, but others are
against it.
Action point
Wonder what the client’s real agenda is. Dare to ask critical questions about why the
client wants to hire you.
Unofficial reasons for hiring consultants
The official hiring reasons reflect a functional perspective on consultancy. The
functionalist perspective is how a consultancy should be. It corresponds with our
definition: providing objective advice on solutions (and assistance with the managerial
implementation tasks) for the client’s business issues. But there is also a critical
perspective on consultancy. This critical attitude is about how consultancy in the real
world can be. In the real world, clients might use consultants for other reasons than
the official ones. Let us look at some unofficial reasons.
First, clients may look for the legitimation of their business solutions. For
example, the top manager of a large car company wants to acquire a battery
producer for its electric vehicles. But the company’s shareholders oppose this
acquisition. Then the top manager hires a prestigious management consultancy
firm to develop a new strategy that prescribes the desired acquisition. Such a
recommendation by a prestigious consultancy may provide a solid signal to the
opposing stakeholders. The client may be able to develop that solution
themselves. Still, the stakeholders’ acceptance may be lower than when a
prestigious consultancy recommends the same solution.
The client may even have a solution to their problem. But the stakeholders
inside the client’s organization, such as the work council, or outside the
client’s organization, for example, investors, may not be convinced of that
solution, or they may even resist that solution. In such a situation, the client’s
management may need the approval or ‘rubber stamp’ of a prestigious
consultancy firm. These consultants do not have to develop the solution as it
already exists. They only must put their rubber stamp on the solution as a
sign of approval. It goes without saying that the legitimator is an unofficial
role for consultants. Neither the client nor the consultants will publicly admit
this role.
The client’s management may need the approval or ‘rubber stamp’ of a prestigious
consultancy firm
To rubber stamp their clients’ solutions, the consultants should have an
excellent reputation. Such a reputation is necessary to convince the
sceptical and opposing stakeholders. But if it becomes known that the
consultants sell themselves as rubber stamps, then their reputation will
deteriorate.
The top management of the client may also use the consultants’
recommendation as insurance against any liability claims. The investors
and/or other stakeholders can hold the top managers liable for decisions
that have gone wrong. By having consultants investigate the critical choices,
top managers can hedge against any liability claims. Suppose these
decisions afterward turn out to be inaccurate, and the injured investors or
other victims hold top management accountable. In that case, the managers
can hide behind the consultancy report: ‘Don’t blame us. We even hired
consultant X (a very prestigious consultancy firm, of course). What more
could we have done?’.
Second, the client’s managers may hire consultants for fighting political battles
with rivalling managers or other actors inside their organization. The hiring
managers use the consultants as a political weapon for internal political conflicts.
The consultants must provide the arguments that allow the client to get their way
in these internal fights. Besides the inner political conflicts, the consultants may
also be drawn into the client’s external political disputes. The client may hire
consultants for political battles with external stakeholders, such as regulators and
civil society organizations.
The hiring managers use the consultants as a political weapon for internal political
conflicts
Third, the client may hire management consultants to function as their
scapegoat. The client uses, or rather abuses, their consultants to shift the blame
to the outsiders, the consultants. The scapegoat is useful when the client wants
to take an unpopular decision which will cause resistance from stakeholders
inside or outside the client’s organization. For example, the client wants to lay off
many employees to cut costs. The client hires a prestigious consultancy firm to
write a report that these lay-offs are inevitable. In this case the client hides
behind the consultants’ back and lets them take the blame for this unpopular
decision. ‘Consultant X (a very prestigious firm, of course) concludes that lay-offs
are inevitable. Don’t blame us.’ The client lets the consultants do the dirty work,
and so the client keeps their hands clean.
The client lets the consultants do the dirty work, and so the client keeps their hands
clean
Fourth, clients may attempt to hire management consultants as knowledge
brokers. Clients may want to abuse consultants to obtain valuable information
about competitors. For example, consultants who have previously conducted a
competitor project will have gained precious knowledge about that organization.
The new client may want to hire these consultants to access that valuable
knowledge. Consultants should refuse such studies as it is illegal to ‘leak’
confidential client information to competitors. If consultancy firms work for
competing clients, they should build so-called ‘Chinese walls’ between the
conflicting client projects to avoid any leakage of sensitive knowledge. Different
consultancy teams work for the various competing clients, and these consultants
should not exchange any confidential or sensitive information about their clients.
Unethical business practices
The client may also ask the consultants to advise on unethical business practices.
The client’s business operations are based, for example, on misleading consumers,
exploiting workers, or polluting the environment. Should the consultants help
strengthen and expand these types of practices? That is an ethical consideration that
the consultants must make. The outcome depends on the values of the consultants.
It may also be the case that the best solution the consultants can find for a client’s
problem is unethical. For example, the consultants discovered that the client could
grow its product sales by using inferior quality ingredients that are not recognizable to
outsiders. The consultants know that the client is not so careful with values and
therefore will embrace this unethical solution. Should the consultants recommend this
immoral solution to their client, or should they recommend the second-best ethical
solution? Again, the decision comes down to the values of the consultants.
Finally, should consultants want to work for all types of clients? This is another ethical
dilemma. Consultancies that take their social responsibility seriously are unlikely to
want to be active in sectors like weapons, tobacco, and gambling.
Action point
Determine your ethical boundary as a consultant before you do your intake interview
with the client. When does the client’s (implicit) question become unethical?
Personal reasons for hiring consultants
Finally, we distinguish the client manager’s business reasons and personal reasons
for hiring consultants. The managers of the client might employ consultants to serve
their personal agenda. For example, working with a top consultancy gives these
managers a sense of importance and increases their prestige. It may be the case that
the client managers are looking for a better job at another organization. As
consultants often work for many organizations in various industries, they have
extensive networks. These contacts can be valuable for client managers seeking new
positions. The consultants may offer to introduce these managers to other
organizations in their network. For client managers looking for better jobs elsewhere,
this can be an essential motive to award these consultants the project. It goes without
saying that such practices are unethical. Moreover, the client managers can use the
consultants for private purposes. For example, the consultants help with side
activities of the client manager, such as the manager’s side-position in the board of a
charity. Help for private purposes can go very far. A case has become publicly known
where a client had a prestigious consultancy firm write in secret the thesis for one of
his children who was studying business administration at that time.
The managers of the client might employ consultants to serve their personal agenda
Multiple reasons for hiring consultants
The official and unofficial hiring reasons do not necessarily exclude each other.
Clients may have both official and unofficial reasons for hiring consultants. For
outsiders it is very difficult, or even impossible, to find out how often clients have
unofficial reasons. Clients may be prepared to admit that they hire management
consultants for official reasons. However, clients will not disclose unofficial reasons.
They will hide them for obvious reasons.
THE ROLES OF MANAGEMENT CONSULTANTS
Edgar Schein distinguished between three official consultancy roles: the ‘expert’, the
‘doctor’, and the ‘facilitator’ (Schein, 1969). Each position is based on the knowledge
that consultants can bring to a client project. Figure 1.4 provides an overview of these
three roles and other roles that management consultants may fulfil.
Figure 1.4 The potential roles of management consultants
The expert role
One of the management consultant’s official roles is the ‘expert’. Clients may want an
expert to provide knowledge or expertise on their problem or opportunity at hand.
These clients know, or they think they know, that their organization has an issue.
Moreover, these clients are capable, or they believe they can define that problem or
opportunity. These clients also know what specific expertise they need from what
management consultant to solve their problems or seize their opportunities. They hire
these consultants to purchase the required expertise of the consultants. Therefore,
this type of consultation is called the ‘purchase of expertise’.
Clients may also hire expert management consultants if they have already found
solutions for their problems
Clients may also hire expert management consultants if they have already found
solutions for their problems. Suppose the stakeholders within or outside the client
organization disagree about what is the best solution. In that case, the expert
consultants may provide the required knowledge to evaluate the alternative solutions.
Expert consultants may, for example, provide benchmark information. This may look
like the legitimation role, but that is not true. The consultants have a real substantive
role here.
Besides knowledge, they may also provide clients with contacts from their network.
For example, consultants may introduce a client to other, non-competing relations of
the consultants that represent best practices in different industries. This networking
role may resemble client managers hiring consultants to exploit their network for
getting a better position elsewhere. But in the expert role, the consultants serve the
business interest of the client organization rather than the private interest of the client
manager.
The expert as a knowledge broker
The expert management consultants provide knowledge to solve the client’s problem
or seize an opportunity. The experts may develop or create this knowledge
themselves, but the experts may also broker knowledge. Within the category of
experts, we distinguish between the knowledge creators and the knowledge brokers.
The consultants as knowledge brokers distribute non-confidential knowledge from
one company to another company, in the same industry, or in another sector. For
example, consultants transfer the non-proprietary, best practice manufacturing
process from the most innovative companies to the trailing client. Besides,
consultants may broker knowledge about a non-proprietary, best practice
administrative function from, for example, the consumer electronics industry to their
focal client in the car industry.
The consultants as knowledge brokers distribute non-confidential knowledge from
one company to another company, in the same industry, or in another sector
Chinese walls
In the case of knowledge brokering, the knowledge may be new to the client, but it
may not be new to the client’s industry. The knowledge is certainly not new to the
world because knowledge to be brokered must already exist somewhere. Knowledge
brokering needs to respect clients’ interests and intellectual property rights if it is not
to become unethical or even downright illegal. For example, consultants cannot
broker a competitive strategy from a direct competitor to their clients. For this reason,
management consultancy firms that work for competing clients in the same industry
must set up ‘Chinese walls’ between the consultancy teams working for each client in
that industry so they can prevent the leakage of secret and/or sensitive knowledge
from one client to a competing client. Some consultancy firms may decide to work for
only one client per industry to avoid any conflicts of interests between clients. But
such a policy limits the growth of the consultancy’s client base.
The doctor role
Another official consultancy role is the ‘doctor’. In this analogy, the clients fulfil the
role of the patient. Whereas the clients of expert consultants can define their problem
or opportunity, the clients of the doctor consultants cannot identify their issues. In
their role as patients, the clients may think they have a problem or opportunity. They
may have vague ideas about this issue. For example, a company faces declining
profitability but management has no idea about the cause of this decline. Therefore,
this client hires a management consultant to diagnose, as a doctor, the client’s
situation to define and analyse the problem. Based on the diagnosis, the consultant
recommends a solution for the client’s problem just like a medical doctor prescribes
treatment for a patient. The name of this consultancy model is ‘doctor–patient
consultation’. The consultants as doctors may provide implementation plans for the
solutions and assist client management in monitoring and controlling the solution’s
implementation. The expert role and the doctor role are about management
consultants providing solutions, or content, to their clients. Therefore, these roles are
named ‘content consultation’.
This client hires a management consultant to diagnose, as a doctor, the client’s
situation to define and analyse the problem
The facilitator role
The consultants offer a process by which clients may diagnose their problems and/or
opportunities, and develop solutions themselves
A third official role of consultants is the ‘facilitator’. The consultants in a facilitator role
help their clients develop the solution themselves. Unlike ‘content consultation’, the
facilitators do not provide solutions or content. It is the clients who create the
solutions. The consultants offer a process by which clients may diagnose their
problems and/or opportunities, and develop solutions themselves. This is called
‘process consultation’ and might also be called the ‘do-it-yourself’ version of
consultancy. In process consultation, the clients do the problem-solving work with the
facilitators’ process (methods and tools) and under the guidance of these facilitators.
Process consultation helps to get the client managers and professionals to accept the
solutions because they developed these solutions themselves. Process consultation
also eases the implementation of these solutions because it is the client’s own work.
The client’s employees may consider the consultants to be outsiders, ‘not one of us’.
Process consultation avoids the ‘not-invented-here syndrome’ of resistance by client
employees against solutions created by outsiders.
The hired hand
A fourth official role of consultants is the ‘hired hand’. Clients may hire consultants
because they do not have enough ‘hands’ – people – to do the problem-solving
themselves. The client’s employees may be fully occupied with the company’s day-today operations. Therefore, they lack the time for a problem-solving project on top of
their already high workload. The ‘hired hand consultants’ are put to tasks that clients
could have done themselves, but for which they have no time. This consultancy role
resembles (expensive) body shopping.
The ‘hired hand consultants’ are put to tasks that clients could have done
themselves, but for which they have no time
The unofficial roles
Besides the four official roles, we distinguish the unofficial roles. These unofficial
roles correspond to the beforementioned unofficial hiring reasons. Management
consultants may act as legitimators, scapegoats, political weapons, and knowledge
brokers.
THE FORMS OF MANAGEMENT CONSULTANCY
Brain consultancy
The official role of management consultancy is recommending solutions to clients’
problems or opportunities. You may ask: How do consultants create solutions? David
Maister, a famous former Harvard Business School professor, distinguishes between
three forms of consultancy: ‘brain’ consultancy, ‘procedural’ consultancy, and ‘grey
hair’ consultancy (Maister, 1982). Figure 1.5 shows how these three forms compare.
Figure 1.5 ‘Brain’, ‘procedural’, and ‘grey hair’ consultancy
For the earliest management consultants at the end of the nineteenth century (!) and
in the early twentieth century, most clients’ problems were new. Mostly client
management hired the consultants to solve new problems which had not been solved
before. Then there were no solutions from similar prior consultancy projects.
Therefore, these consultants had to develop new knowledge to provide solutions to
their client’s problems. By conducting hundreds of thousands of projects over many
decades, the large global consultancy firms have gained knowledge about an
increasing range of issues. There are few issues about which the knowledge systems
of these consultancies have no information. This knowledge has, to some extent,
spread to other consultancies as well.
By conducting hundreds of thousands of projects over many decades, the large
global consultancy firms have gained knowledge about an increasing range of issues
But even today, a client’s problem or opportunity can be new to even the largest
consultancy firms. Examples are new technological developments such as artificial
intelligence (AI).The consultancies may not have seen such a problem or opportunity
before. Solving new issues requires a lot of effort from consultants because the
advisors must invent the wheel. Consultants must be intelligent and creative to come
up with these new solutions. Therefore, they need large brains, which brings us to the
name of this form of consultancy: ‘brain consultancy’.
Procedural consultancy
When a second client approaches the management consultancy firm with a similar
problem, the consultants can use their (non-confidential) knowledge from the first
client’s project. For example, a stock exchange hires a management consultancy for
advice on how to deal with cryptocurrencies. Next, a bank approaches the same
consultants with the same question. The consultants can borrow from the experience
of the first crypto project. The more often management consultants face the same, or
similar, client problems, the more they can rely on their accumulating knowledge
about these problems. Disrespectfully, the consultants can at some point in time take
the solutions off the shelf. These management consultants do not have to reinvent
the wheel every time a new client approaches them with the same or similar
problems. By exploiting their knowledge from prior projects, these management
consultants become increasingly efficient.
These management consultants do not have to reinvent the wheel every time a new
client approaches them with the same or similar problems
Procedures
To increase their efficiency even further, management consultants can write down or
codify their problem-solving experience into ‘procedures’. Suppose the knowledge
about how to solve a problem is explicit. In that case, it can be written down and
structured in a consultancy procedure or a sequence of steps to conduct a task. An
example of a procedure is a cooking recipe. Such a recipe prescribes how to cook a
meal. The consultancy procedures can be put in paper documents or stored in
electronic form in computer databases. It pays off for consultants to develop
procedures for solving frequently occurring client issues. These procedures can vary
from simple checklists to extensive processes or workflows. For example, consultants
can develop procedures for the digital transformation of a client’s business model.
The guidelines prescribe how the consultants should address specific client issues.
They state: ‘This is how we do things at our firm’. Suppose consultancy firms can
codify their knowledge about solving client problems in procedures. In that case, they
no longer need brilliant (brainy) consultants for these issues. They also no longer
need experienced but expensive senior consultants. After all, the consultancy
experience is in the procedure. These consultancy firms may hire inexperienced or at
least less experienced individuals for the role of consultant. Inexperienced
consultants are cheaper, and they may be more easily moulded to the firm’s
requirements than experienced, senior consultants. Of course, the consultancy firm
needs to train these inexperienced consultants in the firm’s procedures. With the help
of these procedures, even inexperienced consultants can solve the known problems
of the clients.
Grey hair consultancy
But not all consultancy knowledge can be codified in procedures
But not all consultancy knowledge can be codified in procedures. We distinguish
between explicit and tacit knowledge. Tacit or implicit knowledge is a type of
knowledge that cannot be written down or structured as a procedure. It is even
difficult to articulate and explain to another person. Therefore, sharing tacit
knowledge with other persons is hard. An example of tacit knowledge is driving a car.
The enormous efforts of tech companies and car manufacturers to develop
autonomous vehicles show how hard it is to codify that knowledge. An example of
tacit knowledge in consultancy is seeing whether the client is ready to make a big
decision or whether the client’s employees really want to implement a solution. The
consultants’ knowledge about how people interpret things, make decisions, and
interact with each other, is typically tacit. Tacit knowledge cannot be learned in the
classroom or from a textbook. People acquire this knowledge through years of
experience. That is why it is also called ‘grey hair’ knowledge. Tacit knowledge in the
consultants’ heads is difficult, if not impossible, to translate into procedures. Maister
calls consultancy based on tacit knowledge ‘grey hair consultancy’.
The emphasis in grey hair consultancy is on tacit experience rather than brainpower.
The consultants should have that experience to solve a client’s issue. Brainpower
cannot substitute for that tacit knowledge. It goes without saying that grey hair
consultancy only fits familiar tasks that the consultant has experience with. It is not
suitable for challenges that are new to the consultants.
The productization of consultancy
Young consultants can deliver procedural consultancy. Although the procedural
consultancies do not need brilliant or experienced people, they still need people to
execute the procedures. Therefore, procedural consultancy is a labour-intensive
activity. As even young consultants are not cheap labour, procedural consultancy is a
costly business for the consultancy firm.
Moreover, the size of the consultancy staff determines the consultancy’s capacity for
projects. A consultancy cannot just accept more projects if it already uses its full staff
capacity. It will have to expand its staff capacity proportionately. The hiring and
training of young, inexperienced consultants can be challenging and time-consuming.
To increase their growth potential and reduce their costs, management consultancy
firms may attempt to codify their problem-solving knowledge into computer
algorithms.
To increase their growth potential and reduce their costs, management consultancy
firms may attempt to codify their problem-solving knowledge into computer algorithms
An algorithm in computer science is a finite sequence of well-defined, computerimplementable instructions to solve a well-defined problem. Algorithms allow
computers to do jobs that used to be done by people. Automation based on
algorithms started with routine and repetitive physical work and then routine
knowledge work. But due to technological developments, such as increasing
computer power and network connectivity, automation expands to non-routine work.
An example is the automation of stock investing through artificial intelligence (AI).
Consultancy firms may translate consultancy procedures into computer algorithms.
The procedural software can then do (some of) the work of consultants. This leads to
the ‘productization’ of management consultancy: products in the form of procedural
software substitute for the procedural consultants’ services. For example, algorithms
identify patterns in big data to identify the differentiating characteristics of profitable
customers and make predictions about the profitability of prospects. In the twentieth
century, consultants conducted quantitative analyses primarily with a spreadsheet
program’s help on a personal computer. Nowadays, the consultants use advanced
data-analytical software or, if the analyses are too complex, work with data analysts.
Besides providing project-based services by consultants with digital enablers
(software), (the large) consultancy firms increasingly offer subscriptions to the
consultancy’s proprietary data bases and software to clients. Such consultancy
products allow clients to do the analyses and develop solutions themselves. Figure
1.6 compares ‘consultancy-as-a-service’ with ‘consultancy-as-a-product’. The next
chapter will elaborate on consultancy products.
Figure 1.6 Consultancy-as-a-service and consultancy-as-a-product
Action point
Before applying for a consultancy position, see if software solutions already exist for
the tasks of this position or estimate the likelihood that this job will be (partially)
automated in the future.
THE RESULTS OF MANAGEMENT CONSULTANCY
The functionalist perspective on consultancy
We have already distinguished between various hiring reasons of clients and
corresponding roles of management consultants. Let’s now discuss the results or
outcomes of a consultancy project. You may ask: How do you define the results of a
consultancy project? We begin with a functionalist perspective. According to the
functionalist perspective, management consultants improve clients’ performance by
providing solutions for their clients’ issues. Clients expect that the consultant’s
solution will enhance their organization’s performance. The performance objective
can be profit, but purposes related to people and the planet are becoming
increasingly important for companies. For example, a client may want the consultant
to develop solutions for revenue growth and a lower environmental footprint.
According to the functionalist perspective, management consultants improve clients’
performance by providing solutions for their clients’ issues
Learning from consultants
There are other results from consultancy besides performance improvements. The
client may learn from the consultants. Client managers and professionals
participating in the consultancy project may acquire valuable skills by learning from
the consultants. Some consultants may even train client staff to prepare for the
consultancy project. Besides the output of a consultancy project, we may also look at
the inputs in terms of consultants’ time. From the input side, a project is a success if
the consultants complete it within time and budget.
The problems with measuring consultancy
Not-measurable results
We can measure the improvement of a client’s financial results, such as revenue
growth and cost reduction. But some effects of consultancy are non-monetary or
even intangible. Examples are the increase of the agility of a client’s production
and the client employees learning from consultants. Intangible results are more
challenging if not impossible to measure. At least we cannot objectively measure
them.
Co-creation
As discussed before, consultancy is a co-creation form; clients and consultants
together create the solution. The clients provide insider information about their
company and the sector. The consultants offer their methods and tools and bring
their own experience. This co-creation means that both the client and the
consultants contribute to the project’s outcome. Generally, it is hard to separate
and isolate the consultants’ and clients’ individual contributions to that
achievement.
Other factors
Consultants develop solutions to improve the results of their clients. But during
the consultancy project, there may be other factors inside and outside the client’s
organization that also impact the client’s outcome. An extreme example of an
outside element is a pandemic, such as Covid-19. Examples of internal factors
are the development of a better product by the client and the transfer of a group
of talented client employees to a competitor. The occurrence of such factors
makes it hard to isolate the contribution of the management consultants on the
client’s achievements. You may ask: What part of the result’s improvement is due
to the consultancy project, and what part is caused by other factors? It is
impossible to design a laboratory experiment with a control group of similar
organizations that did not use consultants. In the absence of a control group, it is
hard, if not impossible, to objectively measure the consultants’ contribution to
their client’s result.
Delays
Often, there is a delay between implementing the consultant’s recommendation
and the time for results to arise. Such a time lapse complicates the measurement
further. This delay implies that we cannot measure the results immediately after
the closure of the consultancy project. The longer the time lapse, the more other
factors can affect the client’s outcome and the more difficult it becomes to isolate
the consultant’s contribution. What further complicates the measurement is that
each client issue and the related advice are different. There are no standard
consultancy services over which we can collect data.
There have been various studies about the financial return on consultancy
projects. But there is no objective basis for measuring the results of consultancy.
Surveys may revert to the client’s perception of consultancy outcomes. But this
research relies on judgement and is therefore subjective.
But there is no objective basis for measuring the results of consultancy
Performance-based pay
Performance-based pay means that the payment to the consultants varies with
the performance improvement of their clients. The more the performance
improves, the higher the fees for the consultants becomes. We have concluded
that the results of consultancy cannot be objectively measured. Therefore,
performance-based pay lacks an objective basis. But client satisfaction may be
used as an indicator of consultancy performance. Therefore, client satisfaction
can be the basis for the payment to the consultancy. The consultants receive a
bonus that varies with the level of satisfaction. But most consultants charge
based on their input (number of hours spent by consultants on the project, and
any other expenses incurred for the project) instead of their output (the results of
the consultancy project).
A critical perspective on consultancy
The critical view stands in sharp contrast to the functionalist perspective on
consultancy. The critical literature concentrates on the rhetoric or persuasive
communication of management consultants. Consultants may use many buzz words
(like digital disruption) and management fashion (such as business model innovation)
to reassure client managers in a world full of uncertainties. Popular criticism by some
journalists and former consultants questions the results of management consultancy.
Their articles and books typically seek out disastrous consultancy projects’ failures
and scandals to characterize management consultants as ‘witchdoctors’ and ‘con
men’. We acknowledge that most – if not all – of these texts are anecdotal and
subjective interpretations of the authors’ personal experiences.
Popular criticism by some journalists and former consultants questions the results of
management consultancy
A critical perspective on clients
It goes without saying that some consultants will behave unethically in some cases.
You can read about their big scandals in the media. But among all other people, not
consultants, there will also be individuals who behave unethically in some cases. The
section on the unofficial and hidden reasons for hiring consultants indicated that
some clients may sometimes also act unethically. Clients may manipulate consultants
and exploit them as scapegoats, rubber stamps, political weapons, and knowledge
brokers.
Action point
Before applying for a consultancy position, try to have informal chats with (former)
employees of that consultancy or with employees of clients.
CONCLUSION
Management consultancy is a popular concept. But it is difficult for outsiders to
understand what consultancy actually is. Management consultancy is an ambiguous
phenomenon. We define it in terms of advice on business issues and assistance with
the implementation of that advice. Clients may have various reasons for hiring
management consultants. Some reasons are official and easy to identify, but others
are unofficial and more difficult, if not impossible to see. We distinguish between
several roles for consultants. The official ones are clearly identifiable, but the
unofficial parts are challenging to determine, if not impossible.
Moreover, consultancy can take different forms: brain, procedural, and grey hair
consultancy. The difference between these forms is in the novelty of the suitable
problems and the explication of the knowledge to solve these problems. Finally, the
results of consultancy are hard to measure objectively. We might conclude that the
versatility and breadth of the management consultancy concept may contribute to its
popularity.
Running Case
Disclaimer: This case is inspired by real-world situations, and it is based on the
author’s interpretation of these situations. Situations have been stylized and
simplified for quick comprehension. The case’s sole purpose is to show how problemsolving methods and tools of consultants may work in practice. It is not the case’s
intent to illustrate any real-world companies or individuals’ good or bad management
practice. Any resemblance to real-world companies and individuals is coincidental.
INTRODUCTION TO THE CONSULTANCY FIRM
‘NoSlideshow’ is a medium-sized management consultancy firm (a fictitious
company). Its consultancy staff and support organization together account for around
2,000 people. Last year, the revenue amounted to about 800 million euro. The clients
are a mix of large and medium-sized businesses. Some clients are national firms,
whereas others are multinationals. NoSlideshow became international by following its
multinational clients abroad, setting up offices in ten countries worldwide.
THE FOUNDERS
NoSlideshow was founded in 1986 by two consultants who worked for a blue-chip
consultancy that focused on advice but did not offer implementation assistance at that
time. NoSlideshow’s founders wanted to set their clients’ organizations in motion to
implement their advice. They wanted to do a lot more for the client than give, what
they called, a slide show. But their then employer did not give them the space to do
so. Therefore, the two consultants founded their own consultancy and formulated the
mission to advise and activate clients.
THE FOCAL PARTNER OF THE CASE
Kate is one of NoSlideshow’s female partners. Women are still a minority at the top of
this consultancy. Still, the firm is doing its best to increase the diversity of the partner
group. Straight out of business school, Kate joined NoSlideshow. She soon became
interested in e-commerce projects and made it her specialty. As a consultant, Kate
already stood out for her analytical and social skills. Therefore, she became in record
time a project manager. Kate not only proved to be successful in managing projects,
but she also demonstrated talent for selling projects. Therefore, she was, again in
record time, made partner.
THE INITIAL CLIENT–CONSULTANT CONTACT
Kate had always wanted to do a project for the e-commerce company named
‘Keyboard’ (also a fictitious company), but that company had never hired consultants
since its foundation. But Keyboard seemed to move away from that position. Kate
has been in contact with Keyboard’s chief executive officer (CEO), Josh, as they are
both on the advisory board of the country’s leading business school. During an
unofficial drink after a board meeting, Josh confidently shared with Kate that he and
his management team were struggling with significant challenges that had not yet
been resolved. Kate had shown understanding for the difficult situation that Josh was
in and offered to continue the conversation with him, of course, without any obligation
for Josh. Josh replied that he would consider the offer. The next day, Kate’s assistant
received a call from Josh’s assistant for an appointment.
SUMMARY
To understand management consultancy, we looked at its characteristics.
Management consultancy is a project-based business directed at managers and
focuses on independent advice for decisions about solving business issues. The
traditional delivery model of consultancy is a service by people, but recently we see
the ‘productization’ of consultancy.
Narrow and broad definitions
Narrowly defined, management consulting is advice about solutions to a client’s
problems and opportunities. A broader definition includes assistance with the
managerial tasks regarding the implementation of these solutions.
Hiring reasons
We distinguish between official and unofficial reasons why clients hire consultants.
Official motivations refer to consultants’ superior solutions because of their
professionalism, experience, independence, and fresh perspective. Unofficial reasons
are abusing consultants as legitimators, political weapons, scapegoats, and
knowledge brokers.
Consultancy roles
The consultant’s official roles are expert (provide knowledge), doctor (identify and
diagnose problems), facilitator (provide a process), and hired hand (provide
temporary capacity). But consultants may also fulfil unofficial roles corresponding to
the off-the-record hiring reasons.
Consultancy forms
Maister distinguishes between three forms of consultancy: brain consultancy,
procedural consultancy, and grey hair consultancy. Brain consultancy is solving new
problems with brainpower. Addressing familiar issues with codified knowledge is the
domain of procedural consulting. Grey hair is about tacit know-how for solving
recognizable problems. The next step in codification is a software program:
consultancy as a product.
Results and perspectives
The results of a consultancy project cannot be objectively measured for various
reasons, such as co-creation and the interplay of consultancy and other factors inside
and outside the client organization affecting the client’s performance. Finally, we may
distinguish between functional and critical perspectives on consultancy. The former is
about how a consultancy should be, while the latter focuses on the unethical
behaviour of some consultants.
REFERENCES
Clark, T. A. R. & Fincham, R. (eds) (2002). Critical Consulting: New Perspectives on
the Management Advice Industry. Oxford: Blackwell.
Kipping, M. & Clark, T. (eds) (2012). The Oxford Handbook of Management
Consulting. Oxford: Oxford University Press.
Maister, D. H. (1982). Balancing the Professional Service Firm. Sloan Management
Review, 24(1), 15–29.
McKenna, C. D. (2006). The World’s Newest Profession: Management Consulting in
the Twentieth Century. New York: Cambridge University Press.
Schein, E. H. (1969). Process Consultation: Its Role in Organization Development.
Reading, MA: Addison-Wesley.
QUESTIONS
1. What appeals to you more, and what appeals to you less in management
consultancy?
2. Would you like to work for a procedural consultancy firm?
3. As a consultant, would you be willing to work for a client who hired you for one of
the unofficial reasons?
2 THE MANAGEMENT CONSULTANCY INDUSTRY
INTRODUCTION
You may wonder: How far does management consulting go back, and where does it
come from? This chapter goes back to the roots of management consultancy. It
traces the consultancy industry’s developments over time from the beginning up to
and including the first two decades of the twenty-first century. The chapter is
structured as follows. First, we investigate the birth of management consultancy as a
result of the Second Industrial Revolution. In the second part, we describe how the
Third Industrial Revolution led to a significant expansion of consultancy. Our third
section is about how the Fourth Industrial Revolution is changing the nature of
management consultancy. Fourth, we discuss five decades of growth in the
management consultancy industry. The chapter ends with a conclusion, a running
case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Put the management consultancy industry in a historical perspective
Explain the emergence of the management consultancy industry during the
Second Industrial Revolution
Understand the influence of technological and institutional changes on the
development of management consultancy
Understand the difficulties of measuring the size of the management consultancy
industry
Understand the three critical dimensions of the management consultancy
industry.
THE SECOND INDUSTRIAL REVOLUTION AND THE
BIRTH OF MANAGEMENT CONSULTANCY
You may ask: Where does management consultancy come from? The profession of
management consultancy cannot be older than the profession of the client: the
business manager. The origin of this concept goes back to the Second Industrial
Revolution (1870). But consultancy as providing professional advice is much older
than that. However, before that revolution, the clients of consultants were not
business managers. Then only the wealthy and the powerful used consultants.
Emperors, kings, large landowners, merchants, and factory owners are examples of
these early clients of consultants who bought advice for complex decisions with high
stakes.
The introduction of the business manager
The discovery of the steam engine around 1769 caused the First Industrial
Revolution as it enabled the mechanization of production. Around 1870 the Second
Industrial Revolution started because of the discovery of oil and electricity. These new
energy sources led to the combustion engine and the electrical engine. The use of
these engines for production machines and the assembly line’s invention enabled
mass production. With production companies becoming more extensive, the need for
capital also grew. The demand for money began to exceed the means of the owner–
director of the traditionally small companies. The issue of shares to obtain the needed
capital caused a separation of management and ownership, or shareholding, of
companies. The traditional owner–director gave way to a professional manager who
ran the business on behalf of the shareholders.
The rise of ‘operations consultancy’
The revolutionary mass production technologies presented significant challenges to
the production companies’ professional managers. Therefore, these managers turned
to outside actors for advice about the factory operations. Engineers were among the
first consultants for these factory managers. The oldest management consultancy
firm provided engineering consultancy to factory managers. In 1886 this firm, named
Arthur D. Little, was founded. The early management consultants were called
‘industrial engineers’ or ‘efficiency experts’ as they provided engineering advice for
improving the efficiency of industrial, factory, operations.
The oldest management consultancy firm provided engineering consultancy to factory
managers
Scientific management
A breakthrough in operations consultancy was the invention of ‘scientific
management’ in the 1880s by an engineer named Frederick Taylor. His method’s
principles of decomposition of work in increasingly small parts and measuring and
benchmarking productivity per part to optimize production are still used. Because of
the enormous impact of his ideas on consultancy, Taylor was named the grandfather
of management consultancy. With its focus on industrial factories, the consultancy
industry in the early day was limited to industrializing countries, predominantly the
United States, the United Kingdom, and some continental European countries.
The rise of ‘organization consultancy’
The Second Industrial Revolution led to the rise of ‘big business’. Whereas factory
managers faced problems with the industrial operations, the top managers of these
companies had to solve the organizational challenges of these large companies. In
the early days these senior managers turned to bankers and accountants for advice
on the organization and accounting systems. But in the Depression Era of the 1930s,
the United States forbade bankers and accountants to combine management
consultancy and their traditional banking and accountancy services. Bankers
withdrew from consultancy, and so did the big accountancy firms, such as Arthur
Andersen.1 But various small accountancy firms, like McKinsey & Company,
exclusively focused on consultancy.
1 Arthur Andersen was one of the big accountancy firms until 2002. After being found
guilty of criminal charges related to Enron’s auditing, the firm voluntarily gave up its
accountancy licences.
Management engineering
These small accountancies became known as ‘management engineering’ firms.
While the industrial engineers worked for factory management, the management
engineers worked for top management. The management engineers’ primary tool
was the ‘general survey’, an integrated assessment of a company’s organization. The
number of management engineering firms in the United States grew from 100 in 1930
to 400 by 1940 and 1,000 in 1950 (ACME, 1964).
M-form reorganization
In the 1920s, large multi-divisional US corporations, such as General Motors and
Standard Oil (now Exxon), replaced their centralized organization with the multidivisional, M-form organization. Managers of many other large US companies also
wanted the M-form but needed help with a reorganization. The management
engineers recognized the demand and began to advise on the organization. This led
to ‘organization consultancy’. During the 1940s and 1950s, the consultancies
implemented the M-form in many large US companies.
Europe
In the late 1950s, the US demand for these (M-form) organization studies was
satisfied. Then the US management consultancies shifted their focus to the untapped
European market for the M-form. In the late 1950s and the 1960s, US management
consultancies, such as Arthur D. Little, Booz Allen & Hamilton, and McKinsey &
Company, opened offices in Europe.
The rise of ‘strategy consultancy’
The same big, multi-divisional corporations that had improved their organization by
implementing the M-form struggled with their corporate strategy. The top
management needed advice on their so-called ‘corporate portfolios’ of divisions. In
the 1960s in the United States, a new management consultancy firm, The Boston
Consulting Group (BCG), developed services to advise top management on
corporate strategy.
BCG started in 1963 as the Boston Safe Deposit and Trust Company’s consultancy
division, which advised the bank’s clients. In 1968 the consultancy introduced its
breakthrough growth/share matrix, or ‘BCG matrix’. After the M-form organization as
consultancy’s growth engine started to sputter, the consultancy industry received a
new growth impulse with the arrival of strategy advice.
THE THIRD INDUSTRIAL REVOLUTION AND IT
MANAGEMENT CONSULTANCY
The Third Industrial Revolution began in the 1950s. The invention of the integrated
circuit or ‘chip’ sparked the ‘electronics revolution’. The first computers, the so-called
‘mainframes’, were developed during the Second World War. Their usage was mostly
limited to the military and governments. But the electronics revolution made the
mainframe computers feasible for more widespread use in the private sector. As
computers were new and complex, companies needed advice and assistance on
various topics, such as installing and using computer hardware, and developing and
maintaining computer software. Computer manufacturers, such as IBM, were the
natural candidates for this new information technology (IT) consultancy.
The new entrants of IT consultancy
In the 1950s, the US Department of Justice prohibited IBM and other computer
manufacturers from entering IT consultancy. Like the regulation in the 1930s that
cleared management consultancy for the new management engineering firms, this
1950s’ regulation created room for new firms to enter the IT consultancy market.
Neither the industrial engineers nor the management engineers or the strategy
consultants seized the opportunity of IT consultancy. Instead new IT services firms,
such as Electronic Data Systems (EDS) (founded by a former IBM salesman Ross
Perot), entered the IT consultancy industry.
Neither the industrial engineers nor the management engineers or the strategy
consultants seized the opportunity of IT consultancy
The ‘Big Eight’ accountancies
Moreover, in the 1950s and 60s, the eighth largest accountancy firms globally at that
time, the ‘Big Eight’, all entered IT consultancy. Big accountancy firms that had left
management consultancy in the 1930s seized the opportunity to re-enter consultancy,
although in a different field – IT consultancy. In 1989 Arthur Andersen separated its
accounting and consultancy practices. The latter was named Andersen Consulting
and in 2001 it changed its name to Accenture.
In the 1990s, the US Securities and Exchange Commission (SEC) concluded that the
large accountancies were no longer truly independent because of their heavy
dependence on consultancy. The ‘Big Four’ accountancies (Deloitte, PwC, EY, and
KPMG) divested their consultancy practices. But in the 2000s, the accountancies
could return to consultancy.
European and Indian IT consultancies
The field was not limited to US firms. In the 1960s, firms on other continents also
entered IT consultancy. For instance, in 1967, in France, the precursor of the IT
consultancy Capgemini was founded. A year later, in India, Tata Consultancy was
established. Another big Indian IT consultancy, Infosys, was founded in 1981. In
1982, the US Department of Justice dropped its antitrust suit against IBM, and in
1991 the firm could enter IT consultancy.
Technology and business process outsourcing
The IT consultancy firms provided advice on their clients’ IT issues and also
developed IT systems for their clients (a service named ‘Technology’). In the (late)
1980s, they also became contractors for their clients’ business processes by offering
‘business process outsourcing’ (BPO) or ‘managed services’. Whereas advice is a
project-based service, managed services are continuous services with a subscription
model. Under this subscription model, the client owns or controls the (computer)
system, processes, or functions being managed by the managed services provider
(MSP). By branching out into other business services, the scope of management
consultancy firms increased.
THE FOURTH INDUSTRIAL REVOLUTION AND
PRODUCTIZED CONSULTANCY
The impact of digitization on clients: The need for
digital transformation
In 2015, Klaus Schwab, the founder and executive chairman of the World Economic
Forum, introduced the term ‘Fourth Industrial Revolution’
In 2015, Klaus Schwab, the founder and executive chairman of the World Economic
Forum, introduced the term ‘Fourth Industrial Revolution’ (Schwab, 2017). Schwab
defined this revolution as technologies that combine hardware, software, and biology
(so-called ‘cyber-physical’ systems). This revolution is driven by breakthroughs in
emerging technologies in fields such as robotics, machine learning, artificial
intelligence (AI), nanotechnology, quantum computing, biotechnology, the (Industrial)
Internet of Things (IoT), fifth-generation (5G) wireless technologies, 3D printing,
augmented reality (AR), virtual reality (VR), and fully autonomous cars. As you can
see around you, some of these developments have already started.
The Internet
The Internet is one of the breakthrough technologies. In the 1990s, the Internet has
caused revolutions in almost any industry or (public) sector of society. Some early
examples of disrupted industries are newspapers, retail, and (recorded) music. Digital
disruption of incumbent ‘brick-and-mortar’ organizations by digital new entrants has
become very common. Innovative digital technologies replace traditional technologies
and related businesses.
The on-demand economy. The Internet has given rise to the so-called ‘ondemand economy’. This is an economy where technology companies fulfil
customer demand by providing products and services via digital marketplaces or
digital platforms on the Internet. A prominent example of such a company is
Amazon, which started with books but branched out into various products,
including groceries and pharmaceutical products. The on-demand economy is
not limited to physical products but also includes services, such as meal delivery.
The gig economy. The related concept of the ‘gig economy’ refers to fulfilling
labour positions via digital marketplaces, such as Upwork. Employers provide via
these platforms short-term, temporary contracts to freelancers and other
independent contractors. There are also digital staffing agencies that offer
temporary labour via the Internet to employers.
The sharing economy. The Internet has also stimulated the ‘sharing economy’.
Digital marketplaces facilitate the sharing of assets and services between
customers. There are peer-to-peer sharing platforms for the consumer but also
for businesses. Physical assets, such as houses and cars, can be shared via
digital platforms as services. Well-known examples of companies offering
sharing platforms are Airbnb and Uber.
Social media. The Internet has allowed for virtual communities or networks of
individuals sharing and exchanging information or content that is generated by its
users. Facebook and WhatsApp are examples of popular websites and webbased apps.
Digital disruption
As a result of the Internet, companies and non-profit organizations established before
the Internet face formidable challenges. Digital disruption by new entrants presents
an apparent problem for these incumbents. But the Internet can also be an
opportunity for incumbents to innovate their processes and their products and
services. In both cases (problem and opportunity), managers must transform their
businesses for the digital economy. Like the Second Industrial Revolution of 1870 and
the computer revolution of the 1950s, the Internet revolution of the 1990s caused
managers (of incumbent organizations) to seek help. Again, it was the management
consultants who fulfilled that demand. In the 1990s the Internet became a new engine
of growth for management consultancy.
Client demand for implementation
In the twentieth century, most management consultants would give advice and then
move on to the next client. They left the implementation of their recommendation to
their clients. But in the 2000s, clients were no longer satisfied with a consultancy
report or a PowerPoint presentation. Instead they wanted the consultants to
implement their advice as well. You may ask: Why did clients do that? We discuss
three main reasons.
Increasing client focus on financial results. In the 1980s, clients became more
focused on financial performance due to the ‘financialization’ of the economy: the
development of financial capitalism. The financial markets and shareholders
have become increasingly influential since the 1980s. Through their influence on
the company’s board, shareholders determine the financial objectives and
incentives for the (top) management. Management’s focus on financial results
has increased accordingly. That is why clients are no longer satisfied with reports
but demand improved financial results from their consultants.
The increasing difficulty of implementation. The implementation of advice is
complex because implementation means change, which is difficult. The Internet
has contributed to the implementation challenges. Adapting the company to the
Internet means digitizing the company’s primary and support processes, implying
a holistic transformation of the company’s business model. Management needs
help for such a complex transformation. They look for outside help if they do not
have the capacity internally. Previous efficiency-improvement processes (often
with consultants’ support) have made many clients ‘lean organizations’. Lean
means that no employees are left to perform tasks other than running the day-today operations. Moreover, transformations are typically political. As outsiders,
consultants are in a better position to facilitate a political process.
Increasing volatility and uncertainty. The Internet has increased the volatility and
uncertainty of sectors. Increasing volatility and uncertainty changes the way a
company can work. In stable and specific circumstances, planning can work.
Managers can analyse the problem, develop a solution, and then implement the
solution. But under volatile and uncertain conditions, every solution is no more
than an experiment. The experiment may fail. Then clients must learn from their
failure and adapt the experiment until they have a workable solution. In this
learning or agile approach, solution development (advice) and implementation
become intertwined. Consultants cannot leave after presenting their advice. Still,
they must be involved in the implementation of their recommendation and the
(inevitable) adaptation of the solution.
The impact of digitization on management consultancy:
Productization
How knowledge changed management consultancy
The first chapter distinguished between brain, procedural, and grey hair consultancy.
New problems and opportunities require brain-type consultancy. When consultants
accumulate experience with specific client issues, they can write down their
experience. Then it is a procedure that inexperienced consultants can carry out.
However, if the understanding of the client’s issue is tacit, then you depend on grey
hair consultants. New developments, such as the Fourth Industrial Revolution, lead to
new issues for clients that revive brain consultancy. But these issues will also become
familiar over time, and then brain consultancy will give way to procedural and grey
hair consultancy.
Digitization of knowledge
After writing down procedures (procedural consultancy), digitizing is the next step in
codifying consultancy knowledge. Consultancy firms may codify parts of their knowhow into computer algorithms. These algorithms allow computers to do some of the
work that consultants used to do. Thus, the procedural software replaces parts of the
work of the consultants and management consultancy becomes partly a software
product. In good English, consultancy becomes productized, as it were. Figure 2.1
visualizes the broadening of management consultancy over time because of the
industrial revolutions.
Figure 2.1 The broadening of management consultancy over time
Productization
Three developments drive the productization.
First, the Internet (including the Internet of Things) leads to the accumulation of
so-called ‘big data’
Second, computers become increasingly powerful, and data storage capacity
increases while data processing and storage costs decrease
Third, advances in data science lead to increasingly powerful algorithms and
software for data analytics.
Proprietary software and databases with benchmarks of companies and industries
become the new management consultancy assets in the twenty-first century.
Productized consultancy is also named ‘asset-based consultancy’. Consultants may
use the software and databases themselves as digital enablers to increase their
productivity. Consultancy firms may also provide subscriptions to clients for the use of
their software and databases as a substitute for parts of the traditional people-based
consultancy services. Productized or asset-based consultancy also offers an
opportunity for software companies like Salesforce.com and Motista. Figure 2.2
compares people-based and asset-based management consultancy. But consultancy
firms may offer both projects (people-based consultancy) and products (asset-based
consultancy). Subscriptions to software may create client interest in people-based
consultancy services as software cannot substitute for all roles that consultants may
fulfil. An example of a productized consultancy is the offerings of ‘McKinsey
Solutions’, a subsidiary of McKinsey & Company. This consultancy has added the
web-based services of its Solutions subsidiary to its portfolio of people-based client
services.
Consultancy firms may provide subscriptions to clients for the use of their software
and databases.
Figure 2.2 The comparison of people-based and asset-based management
consultancy
Consultancy and the gig economy
The rise of the gig economy has impacted management consultancy in the following
ways.
First, the Internet has enabled marketplaces for management talents, such as
GLC and Guidepoint. Clients can use these platforms to access experts, such as
experienced managers, on-demand. These marketplaces have become a
substitute for (the expert role of) consultants. But consultancy firms may also use
these platforms.
Second, the Internet has also led to digital marketplaces for consultants
(freelancers or contractors). These platforms provide consultants on-demand to
clients. But also, consultancy firms use marketplaces for ‘back staffing’. In
addition to their permanent staff, these consultancy firms may hire independent
consultants on a temporary basis to strengthen their project teams.
Third, we consider staffing companies for management consultancy such as
EdenMcCallum. Some companies focus on alumni of blue-chip consultancies,
like MBB. Instead of hiring a team from a management consultancy firm, the
staffing company can put together a tailor-made consultancy team from its
database of consultants.
Strategic groups
The management consultancy firm does not exist. The firms in the consultancy
industry differ to a large extent. According to Kennedy Research Reports, a leading
researcher of the management consultancy industry, four strategic groups of
management consultancies emerged around 2018. All four serve the same client
digital transformation plan, but they approach it in fundamentally different ways.
Figure 2.3 presents the four groups.
Figure 2.3 Four strategic groups of management consultancy firms
Source: Kennedy Research Reports
Advise & Activate
The management consultancies in the ‘advise & activate’ group use an intensive onthe-ground, shoulder-to-shoulder engagement with clients to imprint new ways of
working for the digital economy. As these consultancies focus on the people problem
in the digital transformation, they employ a so-called ‘high-touch’ approach, changing
people’s mindsets, behaviours, and skills. These consultants use ‘war rooms’ and
interim management engagement models to co-create with their clients new ways of
working and new businesses.
Agency
The management consultancies in the agency group use best practice process
redesign and implementation services to drive their clients’ digital transformation
journeys. These consultancies reach in some ways back to the traditional bestpractice consultancy and execution services. But these consultancies invest in their
own digital tools to pre-configure new client processes to avoid piecemeal adoption
and scalability problems for clients.
Assemble
The assembler consultancies start from the premise that instrumented and intelligent
digitized processes and products are the key to their clients’ new business models.
These consultants use data scientists and systems engineers to completely redesign
and build client operating models for digitized operations. They provide technical and
process automation (engineering, robotic process automation, data analytics, and
artificial intelligence) and complex system integration (often partly delivered as
business process outsourcing). Besides, these consultancies use experience design
(design thinking) to engage clients and avoid ‘black box’ adoption problems.
Aggregate
The aggregator consultancies help clients translate new insights from data-driven
operations into business decisions. They invest their unique data and process
knowledge into proprietary products. These products allow clients to quickly start a
digital transformation journey without building their own people skills and assets. This
consultancy takes place in the form of ongoing managed services.
In these four groups, we find traditional consultancy firms that adopt digital
technology. But the consultancy industry also faces the entry of non-traditional
technology players that use advanced analytics supported by artificial intelligence.
Examples are Blue Yonder, Motista, Salesforce.com, and ServiceNow.
But the consultancy industry also faces the entry of non-traditional technology players
that use advanced analytics supported by artificial intelligence
Action point
Compare the four strategic groups and determine which group suits you best.
THE GROWTH OF THE MANAGEMENT
CONSULTANCY MARKET
Measuring the management consultancy market
Measuring the size of the management consultancy industry is complicated. Numbers
about consultancy revenue are hard to get. Even the number of firms and the number
of individual consultants is challenging to assess because there is no obligatory
registration for consultants. Information about profits generated by management
consultancy firms is most-times impossible to obtain because most firms are privately
held. In general, industry statistics are difficult to find. Compared to other industries,
such as mobile phones or cars, the management consultancy industry provides
various researchers’ challenges. We distinguish between three main challenges.
First, a commonly accepted definition of management consultancy is lacking.
There is no agreement on the services that fall under consultancy. When you see
a consultancy industry survey, you should first examine how the researchers
have defined management consultancy. Different definitions lead to divergent
market sizes.
Second, management consultancy lacks an industry register as a source of data.
Management consultancy is not a legally enforced profession and lacks an
obligatory register. There are voluntary professional associations, but most
consultancies are not affiliated with them.
Management consultancy is not a legally enforced profession
Third, stakeholders of the management consultancy have no interest in providing
information. Most clients are reluctant to communicate to the public that they use
consultants and how much they spend on consultancy. Consultancies will be
unwilling to disclose information about clients because of client confidentiality
and competition considerations. They do not want to make their competitors any
wiser than they already are.
Despite these challenges, some statistics about the management consultancy
industry exist. Some government statistical bureaus collect (country-based) industry
data. Some private institutions, such as Kennedy Research Reports (this book’s
source of industry data), provide regional or global management consultancy industry
statistics.
Three critical dimensions of the management
consultancy market
In this section, we distinguish between three critical dimensions of the management
consultancy industry: the offering of management consultants, the clients’ sectors,
and the geographic location of clients. Figure 2.4 visualizes the management
consultancy as a three-dimensional form.
Figure 2.4 Three critical dimensions of management consultancy
Consultancy offerings
In 2008 Kennedy Research Reports categorized consultancy into three different
offerings:
The first offering is management consultancy. The services are advice and
implementation assistance in the areas of operations, organization, and strategy.
This offering focused on the chief executive officer (CEO) and the chief operating
officer (COO) of the client company.
The second offering is IT consultancy and focuses on the chief information officer
(CIO). The services are IT advice and implementation assistance, as well as
system integration of computer hardware, communication infrastructure, system
software, and application software. Besides, these consultancies extend into
operating client assets (also known as managed services).
The third offering is the financial consultancy for the chief financial officer (CFO).
Services include forensics and disputes advisory (investigations), crisis and
recovery (bankruptcy and turnarounds), financial risk and controls advisory, tax
advisory (tax strategy, transfer pricing, merger and acquisition (M&A) tax, and tax
function), reporting and accounting advisory, and transactions (M&A) advisory.
Figure 2.5 shows that IT consultancy is larger than the two other offerings put
together.
Figure 2.5 The management consultancy revenue by offerings, 2008
Source: Kennedy Research Reports
New categorization
The categorization of consultancy offerings may vary over time. During the 2008–
2018 period, digitization became most important for clients. Therefore, the
beforementioned three separate consultancy markets (management consultancy, IT
consultancy, and financial consultancy) had by 2018 merged into one ‘transformation
market’. The largest global consultancy firms had converged on a singular client
value proposition of transforming the client businesses for the fast-changing digital
economy. By 2018 it was no longer possible to isolate IT as a separate consultancy
market because, at that time, IT was everywhere due to digitization. Therefore,
Kennedy Research Reports distinguished between the following four main categories
to better reflect the industry’s state in 2018.
The largest global consultancy firms had converged on a singular client value
proposition of transforming the client businesses for the fast-changing digital
economy
‘Value Transformation’ is the first offering. It is composed of advice and
implementation assistance on the value chain’s primary value-adding activities,
including innovation and new product development, sourcing and procurement,
production operations, supply chain planning, logistics, pricing, channels,
marketing, and customer experience.
The second offering received the label ‘Support Services’. This value proposition
encompasses advice and implementation assistance on the value chain’s
support activities, such as finance, IT, and HR operations.
The label of the third offering is ‘Corporate Structure’. It is composed of advice
and implementation assistance on transactions (such as mergers and
acquisitions), strategy, organization, and corporate services.
The fourth offering is named ‘Risk’. This offering encompasses advice and
implementation assistance in cyber and risk strategy, capital strategy, supply
chain risk, and operational risk.
In 2008 IT consultancy was leading but by 2018 Value Transformation had become
the most extensive offering (see Figure 2.6). But we should not conclude a decline of
IT since 2008 because IT plays an essential role in both Value Transformation and
the other 2018 categories.
Figure 2.6 Consultancy offerings in 2018
Source: Kennedy Research Reports
The growing share of ‘high-tech’ offerings
Productization of consultancy grew fast in the 2010s. In 2018 pure consultancy
products and managed services together amounted to around 100 billion US dollars
according to Kennedy Research Reports. Besides, pre-configured client processes,
technical and process automation, and complex system integration accounted for
approximately 65 billion US dollars in 2018. Together these ‘high-tech’ offerings made
up for about one-third of the consultancy revenues. Traditional ‘high-touch’
consultancy services accounted for the other two-thirds.
Client sectors
Another dimension of the management consultancy industry consists of the sectors in
which clients operate. We distinguish between the private sector and public sector
clients. Figure 2.7 shows that ‘Consumers’ remain the largest industry, but
‘Technology’ is the fastest growing sector.
Figure 2.7 Consultancy revenue by client sectors, 2008 and 2018
Source: Kennedy Research Reports
Action point
Think about what an exciting client sector is to focus on as a consultant.
Client geographies
The consultancy industry’s third dimension consists of the geographies of clients.
Figure 2.8 shows that North America remains the largest category, but APAC is the
fastest grower.
Figure 2.8 Consultancy revenue by client geographies, 2008 and 2018
Source: Kennedy Research Reports
Action point
If you aspire to an international career, find out where the consultancy has offices and
what policy for international transfers the firm has.
The global top 10
Of course, we also consider the individual consultancy firms. You may ask: Which are
the largest management consultancies in the world? Figure 2.9 shows the world’s top
ten in revenue terms in 2008. For diversified companies, this concerns the revenue
from consultancy services and products. As the figure shows, the largest consultancy
is almost three times the size of the number ten.
Figure 2.9 Ten largest management consultancy firms in 2008
Source: Kennedy Research Reports
Figure 2.10 shows the top ten of 2018 and by comparing Figure 2.9 and 2.10, it can
be seen how fast they grew over the 2008–2018 period. There is mobility among the
top ten as the growth rates vary considerably. These three top ten firms were not part
of the 2008 list: McKinsey & Company, The Boston Consulting Group (BCG), and
Booz Allen Hamilton.
Figure 2.10 Ten largest management consultancy firms in 2018
Source: Kennedy Research Reports
Together the top 10 in 2018 had combined revenues of 140.9 billion US dollars. But
the total market was 468.3 billion at that time. Therefore, the share of the top ten was
30.1 per cent. Ten years before, that share was a bit larger, 33.1 per cent. Due to our
familiarity with the biggest firms, we may be tempted to think that most consultancies
are large. However, most consultancies are small firms and independent consultants.
The growth of the management consultancy industry
Thus far, we have considered the 2008–2018 period. Let us take a longer time frame;
the 1968–2018 period. Figure 2.11 shows that the industry grew over the entire
period from 3.5 billion US dollars in 1968 to 468.2 billion in 2018. However, the
average annual growth increased until 1998 and then decreased.
Figure 2.11 Growth of management consultancy 1968–2018
Source: Kennedy Research Reports
The average growth rate over the whole period is double-digit: 10.3 per cent. You
may ask: What has driven this growth? We distinguish between the following
reasons.
Broadening the range of client issues
Since the industry’s beginning in the 1870s, client problems and opportunities have
fuelled the demand for management consultancy
Since the industry’s beginning in the 1870s, client problems and opportunities have
fuelled the demand for management consultancy. As discussed, various industrial
revolutions have played an essential role in these client issues. The Second and
Third Industrial Revolutions drove growth in the nineteenth and twentieth century. In
the first two decades of the twenty-first century, the Fourth Industrial Revolution is a
new consultancy growth engine. As client issues broadened from operations to
organization to strategy and IT, the consultancy industry’s offerings also broadened.
We see a stapling of offerings.
Moreover, beginning with few clients in the 1870s, the number of companies and nonprofit organizations hiring consultants has grown substantially over time. Also, the
number of managers in client organizations who hire consultants has increased. In
the beginning, only top management hired consultants but over the years, lower
managers also began to hire consultants.
Broadening the range of client sectors
Consultancy started in the private sector. The first clients were production companies
but over time consultancy spread to other industries and the public sector. In the
1980s, neo-liberalism arose, which is an ideology of faith in markets and companies.
It is a resurgence of nineteenth-century ideas about economic liberalism and freemarket capitalism. This ideology minimizes the government role. In the 1980s, many
Western countries embraced this free-market thinking which led to deregulation,
privatization, free trade, and globalization. Management consultants provided advice
and assistance in these transformations. Moreover, the idea took hold that
government and public institutions should be run as a business. Governments
needed help with this transformation to a market-oriented organization and enlisted
management consultants en masse.
Broadening the range of client geographies
Neo-liberalism was not confined to Western countries but spread around the world.
Towards the end of the 1980s, former (state) socialist economies (China, the Soviet
Union, Eastern European countries, and India) transformed into a market system.
The adoption of free-market capitalism spurred demand for a management
consultancy in the transforming countries. The liberalization of international trade
produced globalization. The consultancy industry also benefitted from globalization.
Global markets and global supply chains raised new questions for clients. When
clients went global, the management consultancy firms followed suit. Consultancy
firms opened offices around the world. Like their clients, the big consultancy firms
became global.
CONCLUSION
Industrial revolutions have played an essential role in the development of
management consultancy over time. The Second Industrial Revolution sparked
management consultancy defined as advice for professional management. In the
beginning, the ‘tent’ of management consultancy was limited to operations advice.
The growing size and complexity of client companies induced organization and
strategy advice. This made the tent larger. The Third Industrial Revolution expanded
management consultancy with the field of information technology. IT spurred
consultancy firms to expand beyond ‘pure’ management consultancy into business
services. As a result, the tent became even larger. The Fourth Industrial Revolution is
leading to the productization of management consultancy. Management consultancy
has become a big tent. If you want to apply for a consultancy job, you must delve into
what services the consultancy firm provides.
Running Case
THE CONSULTANCY
NoSlideshow belongs to the strategic group named ‘Advise & Activate’. The firm
closely works together with clients to develop and implement solutions. The hightouch offerings of NoSlideshow used to focus on strategy and organization. But in the
twenty-first century, the scope of offerings expanded to the client’s value
transformation for the digital economy. NoSlideshow has complemented its traditional
high-touch approach with high-tech offerings. The consultancy firm has set up a data
analytics unit to support the consultants with advanced data analyses of client
problems or opportunities. The data analysts, nick-named ‘quants’, do not visit client
premises like the consultants but do their analytical work in the consultancy office.
NoSlideshow focuses on the consumer sector: mainly consumer goods, retail, and
transportation. Most retail clients are traditional ‘brick-and-mortar’ operations. They
hire NoSlideshow to digitize their current retail operations and set up online retail
channels. The consultancy has little experience with ‘pure digital players’ in the retail
sector like Keyboard.
SIGNIFICANT CHALLENGES FOR THE CLIENT
Keyboard has been founded as an e-commerce company. The firm had been a
successful disruptor of the retail markets in which it operates. Until now, Keyboard
had never thought it necessary to call in management consultancy. The traditional
retailers who were dethroned by Keyboard and other pure digital players hired
consultants. Keyboard’s top management believed that they could solve their own
problems very well. They did not need consultants for that. But last week, Keyboard’s
CEO Josh confidentially shared with NoSlideshow’s partner Kate that the
management team was struggling with significant challenges that had not yet been
resolved. In the meantime, an appointment has been scheduled between Josh and
Kate at Keyboard’s headquarters.
HIRE A CONSULTANT
Josh has now arrived at the conclusion that it may be wise to hire a consultant. He
got to know Kate as a capable and honest fellow member of the business school
board. But Josh does not know her as a management consultant. He has no
experience with NoSlideshow or any other consultancy. Moreover, Josh cannot
explain to his board that he wants to hire this consultancy firm without comparing it
with other consultancies. Therefore, he inquires in his network for suitable
management consultancies and invites two more for introductory meetings. Now Josh
has three consultants to choose from.
SUMMARY
This chapter explains the development of the management consultancy industry
since its start around 1870. At that time, the Second Industrial Revolution (industrial
mass production) led to professional management. These managers needed advice
on designing efficient mass production operations. The growing scale and scope of
production companies caused around the 1930s the need for new organizational
forms (the multi-divisional form). This demand sparked organization consultancy. In
the 1950s, the Third Industrial Revolution (computers) had begun. The introduction of
computers in companies caused the need for IT consultancy. Client managers also
asked consultants to build IT systems and manage their IT processes (business
process outsourcing). In the 1960s, the problems of the big client companies with
their portfolio of divisions generated the need for corporate strategy and spurred
consultancy on that matter.
Thanks to their many years of experience, the consultants have built up a great deal
of knowledge about clients’ issues. The knowledge enabled procedural consultancy.
In the 2010s, the Fourth Industrial Revolution (cyber-physical systems) created a
watershed in management consultancy history. It allowed the productization of
consultancy. Management consultancy was no longer only a service but could also be
a (software) product.
Finally, we review five decades of growth of the management consultancy industry
(1968–2018). The Third and Fourth Industrial Revolutions played an essential role in
the demand for consultancy during this period. Besides technology, there has been
the role of a shift in ideology. The rise of neo-liberalism in the 1980s increased the
demand for a management consultancy in the following two ways. First, the adoption
of (elements) of free-market capitalism by former state-socialist economies and the
liberalization of international trade caused globalization. Global markets spurred
demand for management consultancies worldwide. Second, growing confidence in
free markets also caused a wave of privatization and deregulation. These
developments also stimulated consultancy demand.
REFERENCES
ACME (1964). Numerical Data on the Present Dimensions, Growth, and Other
Trends in Management Consulting in the United States. New York: Association of
Consulting Management Engineers (ACME).
Christensen, C. M., Wang, D. & Van Bever, D. (2013). Consulting on the Cusp of
Disruption. Harvard Business Review, 91(10): 106-114.
Clark, T. A. R. & Fincham, R. (eds) (2002). Critical Consulting: New Perspectives on
the Management Advice Industry. Oxford: Blackwell.
Kipping, M. & Clark, T. (eds) (2012). The Oxford Handbook of Management
Consulting. Oxford: Oxford University Press.
Kipping, M. & Engwall, L. (eds) (2002). Management Consulting: Emergence and
Dynamics of a Knowledge Industry. Oxford: Oxford University Press.
McKenna, C. D. (2006). The World’s Newest Profession: Management Consulting in
the Twentieth Century. New York: Cambridge University Press.
Schwab, K. (2017). The Fourth Industrial Revolution. New York: Crown Business.
QUESTIONS
1. Compare the generalist consultant who works in various client sectors with a
sector-specialist consultant who works in only one sector. What are the pros and
cons of the generalist approach?
2. How do you think clients choose from the four strategic groups of consultants?
3. How do you think the consultancy industry will develop in the next ten years?
3 THE MANAGEMENT CONSULTANCY FIRM
INTRODUCTION
The consultancy firm does not exist
The consultancy firm does not exist. As discussed in Chapter 2, we can distinguish
between various strategic groups of firms. These groups differ in terms of offerings,
clients, and geographies. Moreover, these firms range from huge consultancies to
tiny firms (so-called ‘boutique firms’) and independent individual consultants. The
chapter starts with the traditional consultancy firm, which was the dominant form up
to and including the twentieth century. It now dominates only one of the four strategic
groups, namely the ‘Advise & Activate’ group which offers the traditional client service
model: consultancy as a people business with a ‘high-touch’ approach. In the second
section, we take a closer look at the economics of such firms. Third, we discuss
important new developments that change consultancy in the twenty-first century. The
chapter ends with a conclusion, a running case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the professional partnership model of consultancy
Understand the economics of a partnership
Understand the managed professional business (MPB)
Understand how digitization is changing management consultancy.
THE ORGANIZATION OF A PROFESSIONAL
PARTNERSHIP
Setting up a consultancy
It is relatively easy to set up a management consultancy. There is no obligatory
registration because consultancy is not a legally enforced profession. To become a
consultant, you do not need to meet specific entry requirements. Anyone may call
themselves a management consultant. Calling yourself a management consultant,
developing a website, and creating a business card is relatively easy. The proof of the
pudding is in the eating: acquiring and retaining clients is the real challenge for
consultants. You may wonder: how to build a client base? Clients look for proof of
consultancy: does the advice work? Consultants without clients cannot show proof
and, therefore, will find it difficult to get clients. This is a chicken and egg problem.
Therefore, most starting consultants do not grow from one person to many people;
that is a firm. There are vast numbers of independent consultants.
The proof of the pudding is in the eating: acquiring and retaining clients is the real
challenge for consultants
The firm versus the individual
A consultancy firm (of multiple consultants) has advantages over a single consultant.
Big clients commission big projects. Such projects exceed the capacity of an
individual consultant because they are too much work. These projects may also touch
on too many different disciplines, such as IT, marketing, and operations. Therefore,
they require too much knowledge and skills for a single consultant. The knowledge
and skills of an individual are limited. Firms do not face such limitations because
consultants with complementary knowledge and skills can join forces in a firm.
Besides, these people can act as each other’s sounding board, which is a form of
quality assurance. Moreover, firms also eliminate a client’s continuity risk of hiring a
single consultant. If an independent consultant becomes sick, there is no
replacement and the project is delayed or not completed.
For all these reasons, single consultants may be better off seeking partners and form
a firm. Together the consultants can organize themselves as a professional
partnership.
The professional partnership
A professional partnership is a group of partners. The naming convention for the top
level may differ from firm to firm. Examples of other terms for partners are directors,
principals, and vice-presidents. The partners are the owners and managers of the
firm. Typically, a partnership can restructure into a private corporation with shares
owned by the partners. This is called the incorporated partnership. If the demand for
their consultancy services exceeds their personal capacity, then the partners can hire
consultants. In the grey hair consultancies, there are limited opportunities for
delegation of the work to inexperienced, junior consultants. Grey hair consultancy
depends on tacit knowledge in the head of the experienced partners. In contrast,
procedural consultancy depends on delegation of work to inexperienced junior
consultants. Procedures are meant for delegation to these junior consultants. The
potential for delegation to juniors in brain consultancy firms is in-between grey hair
and procedural consultancy.
Figure 3.1 A professional partnership pyramid
A professional partnership pyramid
Typically, we distinguish between three hierarchical levels in a professional
partnership pyramid: partners, managers, and consultants (see Figure 3.1). These
levels stand for a division of roles and responsibilities. The pyramid can have more
than three levels as the partners may divide levels into sub-levels; for example, firms
may distinguish between junior and senior consultants.
The partners
Partners are responsible for project acquisition and client relationship management.
Moreover, they have the final responsibility for the consultancy projects. Therefore,
they supervise the managers. However, partners may also participate in the project
execution. Moreover, partners manage the consultancy firm. If the partnership is
large, then the partners will divide the roles. A selection of partners will be
responsible for firm management, including human resource management (HRM).
Usually they continue to do client projects in addition to their managerial work for the
firm. When the firm is large, management becomes a full-time task. The managing
partners will focus on firm management and no longer do consultancy work. But as a
partner you cannot stop working for clients for too long, because then you will lose
your client network. Moreover, partners often enjoy working with clients more. That is
why they chose consultancy as a career. Therefore, partners will fulfil the managerial
roles on a rotation basis. After serving a couple of years as firm manager, they return
to their consultancy work.
The managers
The managers, sometimes called project leaders, are responsible for the project
management. They design the project plan or action plan and supervise the
consultants on the project. It is the responsibility of the managers to synthesize the
outcomes of the consultants’ analyses into a recommendation for the client. The
junior managers receive a lot of guidance from partners. The more senior the
managers are, the more work they will do without a partner’s support. But partners
will always monitor and control the project because they remain responsible for the
project.
The consultants
The consultants perform the operational tasks in a project. They conduct data
collection (such as desk research, interviews, surveys, and observations) and do the
data analysis. Preparing PowerPoint slides for client presentations is another task for
consultants. The manager will guide the consultants, evaluate their work, and provide
feedback. Job titles may vary by consultancy. Some firms call their consultants
associates or analysts.
The project
The project is the vehicle of consultancy. Consultancy is project-based work. Figure
3.2 shows how projects connect all stakeholders inside and outside a consultancy
firm. The starting point of a project is the sale by the partners.
Figure 3.2 The central role of projects
The project team structure
Apart from the independent consultants who operate alone, consultancy projects are
teamwork. Such teams typically consist of a partner, a manager, and a couple of
consultants (the number depends on the amount of work). While the manager and
the consultants usually work full-time on a project, partners may run two or more
projects simultaneously.
The partner leverage
An important characteristic of project teams is the so-called ‘leverage’ of the partner
An important characteristic of project teams is the so-called ‘leverage’ of the partner.
This leverage is the number of consultants and managers per partner. The next
section explains why leverage is important. The partner in Figure 3.1 works with two
managers who each manage three consultants. The partner’s leverage in this
example is eight. The leverage varies by type of consultancy: brain, procedural, and
grey hair, and consultancy. The partners in brain consultancy have the lowest
leverage, while the leverage of the procedural consultancy partners is highest. Figure
3.3 shows a partner who works with three managers. Each manager has five
consultants. In total, the partner has a group of 18 people to work with. These
managers and consultants may work on one project or on different projects.
Figure 3.3 A larger leverage of a partner
Action point
When you apply, you should try to determine the leverage as it indicates the
consultancy model.
The organization of the consultancy activities
You may ask: How is a consultancy firm organized? We distinguish between these
three critical dimensions of management consultancy:
client sectors or industries
consultancy offerings
client geographies.
Client industry practices
Clients are the source of income for the consultancy. Partners bring in money through
clients. Partners have one very large client or more smaller clients (the number
depends on the size of the clients: the larger the clients, the fewer clients the partners
need to meet their revenue target). The clients pay for the consultancy’s offerings.
Therefore, clients are the most important dimension for consultancies. Partnerships
are typically organized by the client industry and partners specialize in industries. The
partners form industry practice area groups, such as retail or energy. In a practice,
the partners exchange experiences and develop new knowledge (of course, without
sharing sensitive data about clients). Managers and consultants can join industry
practice groups too. The groups help them to develop their industry expertise and
network.
Innovation
Besides client projects, the partners may initiate ‘internal’, non-client studies to
develop new knowledge about industries and relevant topics, such as digitization.
Consultancy firms innovate by learning from client projects and their non-client
studies. The consultancies translate the resulting insights from their projects and
studies into new offerings and/or publications, such as articles on the web, (own)
magazines, books, white papers, guest lectures, and speeches for conferences and
roundtables. These publications signal thought leadership and contribute to the
consultancy’s reputation. Thought leadership is a competitive strategy of some
consultancy firms. These consultancies invest time and money to develop the newest
knowledge and tools on a specific topic to become the authority and the consultantto-go-to for that subject. Examples of topics are block chain technology, smart
industry (or ‘industry 4.0’), and sustainability. The investments in knowledge
development can be substantial, which makes thought leadership primarily a strategy
for large consultancies. But consultants can limit their investments by collaborating
with knowledge institutes such as universities. An alternative to a thought leadership
strategy is a quick imitation. As soon as the thought leader has introduced her
innovation, the imitating consultancies quickly follow up with their own interpretation
of this new idea or tool.
Functional practices
Client projects require both industry knowledge and expertise on one or more
functional disciplines. For example, a value transformation project may comprise of
various functions like operations, human resource management, and systems
integration. Partners need to integrate these different functional disciplines into their
projects. Besides industry practices, consultancy firms have functional practices. In a
functional practice, consultants exchange thoughts and experience, cooperate on
(non-conflicting) client projects, and conduct non-client studies to develop functional
knowledge. Everything we have said about industry-topic innovations also applies to
functional topics.
The individuals in a consultancy firm typically combine industry and functional
specialization. They are part of two practices and thus wear two caps: an industry cap
and a functional cap. For example, a consultant specializes in the banking industry
and in IT. There is an internal market of supply and demand for industry and
functional expertise within a consultancy. The more valuable a consultant’s expertise
is, the stronger her position in this internal market becomes.
Offices
Every consultancy firm starts with a single office. Over time, the growing firms open
additional offices in different geographies: cities or countries. The partners in the
consultancy firm can take the initiative to open a new office if there is enough market
potential for a viable new office. Typically, the firm copies the office structure and the
new office is a replica in another city or country. The largest firms have international
networks of hundreds of offices. The head office houses the firm management and
the firm-level support functions (such as Legal, Fiscal, Finance, and Public
Relations).
Organization of the support activities
We distinguish between two types of support functions in a consultancy: support
directly related to consultancy projects and the indirect support or ‘office functions’.
Support centres
Consultancy projects consist of project design, data collection, data analysis, advice,
and assistance with the managerial tasks of implementation. This is the work for
consultants. But some consultancies relieve their consultants and hand over part of
these tasks to so-called ‘support specialists’. These specialists work on demand and
charge the projects for their support. Specialists do not have face-to-face contact with
the client because they work from the consultancy office. If the support organization is
extensive, the specialists may work in ‘support centres’ in other (cheaper) locations.
Firms may even offshore these centres. We distinguish between various categories of
project support activities.
Research and knowledge management
By conducting project after project, consultancy firms acquire enormous amounts of
knowledge year after year
One category is research and knowledge management (R&D). These specialists
support projects with data and analysis. They may have industry or functional
expertise. The R&D centre may also have local specialists who have deep knowledge
about a specific country or region. By conducting project after project, consultancy
firms acquire enormous amounts of knowledge year after year. Suppose a
consultancy works with project teams of four people who do an average of four
projects per year, then the annual number of projects is equal to the number of
consultants. A firm of 10,000 consultants then carries out 10,000 projects annually.
Some knowledge from the projects is of a tacit nature, whereas other knowledge is
explicit. The tacit knowledge from projects stays in the heads of consultants. The
consultancy firms can create networks of experts or specialists in R&D centres and
practice groups. Consultants on a project can call the firm’s experts to tap into their
tacit know-how. The explicit knowledge from projects can be codified and stored in
the consultancy’s computer or knowledge management systems. Consultants search
their firm’s digital knowledge system for the explicit knowledge they need for their
projects.
Graphics
A second category of support activities is ‘Graphics’. Although every consultant can
work with PowerPoint, not everyone is a graphics professional. Consultancies set
high quality standards for their PowerPoint slides because presentations are one of
the most visible products of consultancy. The presentations are also a means of
showing the identity of the consultancy. Without the firm’s logo, insiders can already
recognize which consultancy the slides came from. The consultants can distinguish
themselves by colour, font type, and layout of the slides. The consultancies must
monitor the corporate style of their presentations. For these reasons, consultancy
firms have special departments for designing and producing PowerPoint
presentations. Consultants who have completed an analysis submit their results to
the graphics specialists. These specialists create the best slide design to present the
analysis insights in the house style of the consultancy. Furthermore, due to their
specialization, graphics specialists are much faster than the average consultant.
Finally, these specialists are a lot cheaper than consultants.
Consultants who have completed an analysis submit their results to the graphics
specialists
Report writing
Report writing is a third category of support activities. Some (public sector) clients
want a text report instead of, or in addition to, a PowerPoint presentation. Writing a
text report is a profession, just like designing a PowerPoint slide. Consultancy
agencies have professional writers and editors to ensure that text reports are written
logically and clearly. The consultants hand their analysis insights and advice to
professional writers who make the reports.
Analytics
A fourth category of support activities is analytics. This support is about the more
complex quantitative data analysis. Whereas the consultants can do the relatively
simple data analyses, they will hand over the more complicated analyses to an
analytics specialist. The very large consultancy firms may have analytics centres for
building and running analytical models. Traditionally, consultants used a spreadsheet,
like Excel, to build models. Nowadays the consultancies increasingly need more
advanced analytical tools. Data analysts and data scientists increasingly replace
spreadsheet model builders.
Implementation
The implementation of the advice is a fifth support category. Value transformation of
clients is nowadays the most popular offering of consultancies. Such transformation
means implementation. Advice giving and implementing advice are different activities.
They require different skills and knowledge. The advice and implementation projects
also differ in length: implementation takes much longer than advice. Consultancies
may have implementation specialists to support the consultants. The very large
consultancies may have so many implementation specialists that they organize them
in implementation centres.
The office functions
Here we discuss the indirect support, the so-called ‘office functions’. These functions
can be in the consultancy office, but they may also be in another location. Some
consultancy firms offshore their back office to reduce their (labour) costs. We discuss
the main office support functions of a consultancy.
Human resource management
Consultancy is people’s business. Human Resource Management (HRM) is,
therefore, a key function. If there is a lot of recruitment (especially if an ‘up-or-out
policy’ leads to a high turnover of staff: see next chapter), recruitment is a separate
function. Learning and development is another HRM function. It entails formal
consultancy training and the support of the on-the-job training of consultants. Career
development also belongs to HRM. This is about the progression of consultants to
management positions and even partnership. The staffing of managers and
consultants on projects is also part of HRM. Staffing is about the question: What
managers and consultants should be staffed on a specific project? As learning-onthe-project is important for the development of staff, staffing is an important HRM
function. The large consultancies have automated systems for staffing people on
consultancy projects.
Staffing is about the question: What managers and consultants should be staffed on a
specific project?
Firm infrastructure
‘Firm infrastructure’ is the collective name for the leadership and a series of indirect
support services, such as IT, Accountancy and Control, Finance, Risk, Fiscal, Legal,
and Public Relations. In a partnership, the leadership consists of the (senior)
partners. Large firms have a leadership team of senior partners. One partner is the
chairperson or managing director. The other team members are responsible for one
or more industry practices and/or functional practices. These senior partners typically
also carry responsibility for the offices in a country or geographic region. Moreover,
these team members direct one or more support services. Figure 3.4 visualizes a
value chain of a management consultancy firm (translation of Porter’s value chain
into a consultancy context).
Figure 3.4 A value chain of a management consultancy firm
Values and policies
The partners have a great deal of responsibility and autonomy. They are responsible
for bringing in clients and retaining them: repeat business is critical. The leadership
gives the partners a great deal of freedom. The leaders of the consultancy mainly try
to guide the partners and the employees through the firm’s values. These values are
g
p
p y
g
critical governance instruments of a consultancy. Therefore, the leaders pay close
attention to formulating the consultancy’s values.
The consultancy’s purpose goes beyond helping clients and developing consultancy
talent. Consultancies also want to be responsible corporate citizens who adhere to
the highest environmental, societal, and governance standards. They want to do
good and make a positive impact on society. The consultancy firm’s values not only
include the highest norms of professional conduct but also societal standards such as
embracing diversity of people and perspectives.
The consultancy’s leadership develops codes for professional conduct to steer the
behaviour of the people. These codes should help employees to make the right
choices when faced with ethical dilemmas. Moreover, the leadership creates policies
for selecting, developing, and evaluating people. There are also policies for client
selection and criteria for assessment of ethical dilemmas and risks of clients and
projects. Consultancy firms may decide not to work for certain clients or industries
due to ethical and other dilemmas. For example, the leadership can decide not to
work for governments in non-democratic countries or for political parties, lobbyists,
and intelligence agencies in general.
Culture
The organizational culture of consultancies is the shared assumptions, values, and
beliefs of the firm’s people. This culture expresses itself for example in the attitudes
and behaviour of the consultancy’s members, their language, their style, their
anecdotes, and symbols. The culture of many consultancies is characterized by a
strong orientation to results. Creating value for clients is a priority and consultants put
their clients’ interests ahead of their own firm. The belief is that as long as consultants
properly represent the interests of their clients, clients will reward them for this.
Consultancy firms only select and retain the best people and these people generally
work very hard. These firms typically are meritocracies, which are organizations
where people are rewarded and promoted based on their valuable ideas and
achievements instead of their hierarchical position or background.
Action point
Make sure you have a good relationship with the people in the support roles. You
depend on them to a great extent.
THE ECONOMICS OF A PROFESSIONAL
PARTNERSHIP
The project as the consultancy’s main vehicle
Acknowledging the increasing importance of consultancy products, the project still is
the main vehicle of most management consultancy firms. Consultancy partners sell
projects to clients. The consultancy staff (managers and consultants) delivers the
projects (with the support of the support staff). Consultancies operate in two markets:
the market for consultancy projects and the talent market for the people to deliver
these projects.
The project team structure in terms of the ratio of partners, managers, and
consultants is based on the type of project. The project type determines how many
people are needed and the partner’s leverage.
The project team structure
We use a simple firm that is shown in Figure 3.1 as an example. The goal of this
example is to give a basic idea of the economics of consultancy. The firm is a
provider of projects. The project team structure (this example: a half-time partner, a
manager, and three consultants) must correspond to the project type.
The revenue of a project
Performance-based pay for projects is uncommon for the traditional client service
model. In most cases, the project’s fee is a fixed sum, or it is based on actual
consultancy time and expenses. The actual consultancy time is the number of
consultancy hours charged to the project (number of people times number of hours
per person). The fixed sum fee is based on the budgeted time for the project. Clients
also pay for all expenses that consultants incur for the project, such as travel and
lodging expenses. But expenses may also include other items, like research reports
and market research by third parties.
The billing rate is what clients pay for the time of a consultant. Time is usually
calculated in days. For example, the rate is two thousand euros per day. A
consultancy firm’s budgeted annual revenue is based on the ‘normal production’ in
terms of the normal number of billable days per year. We may use a mathematical
formula: billing rate of a person x normal number of billable days per year x number
of persons = annual normal or budgeted revenue of the firm. Figure 3.5 shows the
annual budgeted revenue of a consultancy.
Figure 3.5 The annual budgeted revenue of a consultancy firm
The compensation costs
It is challenging, if not impossible, to objectively define consultancy performance
You may ask: How to set the billing rate? As mentioned before, performance-based
pay is unusual in consultancy. It is challenging, if not impossible, to objectively define
consultancy performance. Only in some cases, such as a cost reduction project, is it
possible to calculate the performance improvement of a consultancy
recommendation. Moreover, determining the client’s willingness to pay is also difficult.
Therefore, we also need to account for competition between consultancy firms. Rival
consultancy firms can lower their rates if they really want to win an assignment.
Because of the difficulties with performance-based pay, the rate is typically set on a
‘cost-plus basis’. Consultants have a mark-up on their costs. Therefore, let’s take a
closer look at the costs. We distinguish between consultancy (time) compensation
and other costs. The traditional client service model of the partnership is peopleintensive. Therefore, compensation costs are most important.
The structural compensation
Partners, managers, and consultants receive structural compensation (base salary
and bonus) for their time. You may ask: Why do partners get compensation on top of
the profit they receive? Profit is only really profit when all costs are subtracted from
revenues. The time of partners is also a cost item because these people do not work
for free. Therefore, profit includes costs of partners’ time.
You may wonder: What does a consultant cost? Think of salary, any bonuses, and
social security contributions that the employer must pay. Also, you must account for
other personal costs such as a workplace in the office, a company car (if applicable),
training, a laptop computer, and of course a smartphone. Figure 3.6 shows the
annual budgeted compensation costs of a consultancy.
Figure 3.6 The annual budgeted compensation costs of a consultancy firm
The normal production
Our example uses a billing rate on a cost-plus basis. Let’s dive deeper into the cost.
We consider the cost per day. Dividing the total costs per year by the ‘normal annual
production’ gives the cost per day. The normal annual production per consultant is the
number of days that the consultant should do billable work for clients. We must
account for non-billable client development work, such as research on prospects
(potential clients), developing relationships with prospects, and developing project
proposals for projects. Besides, we need to consider holidays, training, absenteeism,
and idle time because you cannot assume that consultants perform paid work for
clients at every available hour.
The billing multiple
To compensate for the non-billable days and other consultancy costs, the consultancy
must charge or bill the client more than the daily costs. The fee is a multiple of the
consultant’s compensation costs. The multiple is named the ‘billing multiple’. A firm
may have a multiple of around three. But multiples will vary by consultancy. The
height of the multiple varies with the amount of the other (non-compensation) costs,
the client’s perception of the value of the consultancy services, and the intensity of
competition. Consultants also put a mark-up on their material expenses for the
project.
The fee is a multiple of the consultant’s compensation costs
The firm’s annual profit
Besides the compensation costs of the consultants, we must also consider the other
costs of the consultancy. These costs include the support activities for the projects,
such as R&D, analytics, and graphics. Support specialists also charge their time
(compensation costs) to the client projects. The overhead of the consultancy (the
office functions in Figure 3.4) also belongs to the other costs. The other costs can be
substantial. In the example, we assume these costs to be a third of the turnover
(based on the normal production). In the real world, these costs may vary among
consultancies. Figure 3.7 shows the consultancy’s annual profit.
Figure 3.7 Annual profit of a consultancy firm
The project’s profit
We can calculate the profit of a single consultancy project. Instead of the whole firm,
we look at a project team. The project team in our example is as follows: half a
partner (the partner spends half of her time on the project), an entire manager (this
person works full-time on the project), and three consultants who work full-time on the
project. The time period is not a year but the duration of the specific project. For
example, let’s assume a project duration of three months or 60 working days. Based
on the billing rates, the project fee or revenue in the example amounts to 1.282
million US dollars. The consultants’ compensation costs add up to 427,000 US
dollars while the other costs come to 423,000. This brings the total profit of a project
to 432,000.
Profit drivers
You may ask: What drives the profit of a consultancy firm? To analyse the profit, we
unpack it into its drivers. We distinguish between four drivers of profit.
Margin is one driver. This is equal to the profit divided by revenue or the ratio of
profit and billings. We express the profit margin as a percentage of the billings.
Productivity of the managers and consultants is a second driver. This is
computed as revenue divided by the number of managers and consultants.
Please note that we exclude the partners and the support staff. The productivity
of the non-partner consultancy staff is the average amount of billings per person.
If we multiply the margin by productivity, we get the average profit per nonpartner consultancy staff member. Consultancy firms may improve the
productivity of these members by delegating non-client-facing work to support
centres. The delegation of this work allows managers and consultants to take on
more billable work and so increase their billings.
The leverage of partners is a third driver. Leverage corresponds to the number of
managers and consultants per partner.
Leverage corresponds to the number of managers and consultants per partner
The number of partners is the fourth driver. The profit of a consultancy is a
formula: the margin x productivity x leverage x number of partners (see Figure
3.8).
Figure 3.8 The profit driver formula
Action point
If you are going to apply to a consultancy, inquire about how the number of working
hours per day develops during a typical project.
How to increase profit per partner
For the partners, it is not the total profit of the consultancy that is most important, but
the profit per partner. That is the money they receive. To increase the profit per
partner, the partners can do three things.
First, they can increase the margin by increasing the billing rate and/or reducing
the costs.
Second, the partners can increase productivity by increasing the number of billed
hours of the managers and consultants. Capacity planning aims at increasing the
number of billed hours by improving the utilization of the consultancy staff.
Because of its importance for profit, capacity planning is the (senior) partners’
responsibility.
Finally, partners can increase the profit by increasing their leverage. However,
leverage is related to types of consultancy: brain, grey hair, and procedural
consultancy. There are limits to changing the leverage if you do not change the
type of consultancy accordingly.
THE MANAGED PROFESSIONAL BUSINESS
During the 1960s, IT gave rise to new offerings beyond the traditional consulting
services: advice and assistance with the managerial tasks of implementation. Some
consultancy firms began developing IT systems for clients. From the late 1980s
onwards, clients could outsource complete business processes to these
consultancies: the so-called managed services.
The shareholders
These new offerings are capital-intensive. They demand more capital than the
consultancy partners can fund. Therefore, these partnerships are restructured as
Managed Professional Businesses (MPB) or consultancy corporations that can issue
shares on the capital market. The MPB is a public company as its shares are public
and traded on the financial market. This type of consultancy is owned by external
shareholders instead of by partners. MPBs do not have partners. The shareholders
control the MPB via the appointment of the non-executive directors on the board. The
non-executive directors supervise the executive directors of the consultancy.
Executive directors, not partners, manage the MPB. These executives may have
some shares in the MPB, but they do not own the consultancy corporation. These
executives get incentives from the board to create shareholder value in terms of
dividends and stock price increases. The stock price is a key performance indicator
for the consultancy corporation. The consultancy corporation needs to publish its
financial results every quarter. The financial reporting and the stock price make the
consultancy corporation highly visible to the public. Every quarter, the executives face
the pressure to deliver financial results that meet, or even better, exceed the
shareholders’ expectations.
The stock price is a key performance indicator for the consultancy corporation
The multi-divisional firm
Because the offerings of the MPB vary so much, this consultancy corporation has a
multi-divisional form. The different nature of the divisions adds to the challenge of
managing such corporations. Compared to the professional partnership, the MPB is a
complex organization. Figure 3.9 presents the organizational chart of a MPB.
Figure 3.9 An example of a Managed Professional Business (MPB)
The leadership team
Like the leadership of a professional partnership, the roles of the executive directors
of an MPB follow the three dimensions of management consultancy: offerings, client
sectors, and geographies. Some leaders are responsible for offerings, such as
consultancy and IT system development (named ‘Technology’). Other executives lead
geographic regions. Moreover, some executives are responsible for the corporate
functions, such as Finance, Legal, Strategy, HR, and IT. In the example of Figure 3.8,
the client sectors or industry groups are found at a lower level (not shown in this
figure).
Innovation in an MPB
Earlier we spoke about innovation within partnerships. This concerned industry and
functional groups of consultants. These people learn from their projects and do nonclient studies to develop new knowledge and tools. This approach to innovation
especially applies to the professional partnership model. MPBs can take a broader
approach to innovation. Besides industry and functional groups of consultants, these
consultancy corporations may have separate and dedicated organizations for R&D.
Furthermore, the MPBs may invest in promising start-ups: independent
entrepreneurial companies that work on relevant new (digital) technologies and tools,
such as artificial intelligence (AI) systems. These corporate ventures are part of a
consultancy’s acquisition and development strategy. MPBs may buy up these
companies and integrate them into the main business or let them operate under their
own name. We acknowledge that the largest professional partnerships may also
follow such a venturing and acquisition strategy.
NEW DEVELOPMENTS
Digital transformation of clients
In the 2010s, the digital transformation of clients induced a large market for digital
consultancy. Digital consultancy is helping clients seize the opportunity of digital
technology, such as big data, AI, the cloud, and advanced robotics. Digital
consultants provide advice on how clients can use digital technology for:
Collecting, analysing, and extracting value from big data through AI-driven
decision making
Automating (digitizing), optimizing, and redesigning business processes and
operating models
Developing new and smarter products, services, and business models.
Digital transformation of consultants
Digitization has led to ‘high-tech’ consultancy in the form of productization of
consultancy offerings and digitization of consultancy processes
Digitization was not only a challenge for clients but also affected the consultants.
Digitization has led to ‘high-tech’ consultancy in the form of productization of
consultancy offerings and digitization of consultancy processes. Pure consultancy
products (consultancy by software), pre-configured client processes (in the form of
software), and managed services (business process outsourcing) have become big
businesses. Part of the data collection and analysis by consultants has now been
digitized and enabled by digital technology. Knowledge management of consultancy
firms has also become a digital system. Consultancy has moved from a traditional,
people-only delivery model to a people-driven and technology-enabled model.
This digital transformation of consultancy requires massive investments (among
others, in data scientists and software development) and are characterized by large
economies of scale. That is why these opportunities are mainly reserved for the
largest firms. Solo consultants and small consultancies do not have the money for the
investment, nor the scale to recoup the investment.
Strategic grouping
During the 2010s, four strategic groups of consultancies have emerged (for more
details, see Chapter 2).
The first group is ‘Advise & Activate’, which is ‘high-touch’, intensive on-theground, shoulder-to-shoulder engagement with clients.
The second group is labelled ‘Agency’. These consultancies offer ‘high tech’
digital tools to pre-configure new best practices for client’s processes.
The third group consists of the ‘Assemblers’, or consultancy firms that completely
redesign and build client operating models for digitized, automated operations
through complex system integration.
‘Aggregators’ constitute the fourth group. These consultants provide ‘high-tech’
consultancy products and proprietary knowledge and data for translating new
insights from data-driven operations into the client’s business decisions.
Productization
For the productization of consultancy offerings and the digitization of consultancy
processes, consultancy firms needed new digital capabilities. Acquisitions were a
popular route to gain these capabilities. Consultancies have set up digital specialist
business units next to the consultancy staff. The staff of these businesses now
comprises consultants as well as data analysts. Moreover, solution implementation in
the form of the clients’ value transformation became increasingly important for
consultancies in the 2010s. Some consultancy firms have formed transformation
business units. Finally, design thinking has become increasingly popular with clients.
Consultancies have responded to this trend by creating design business units to
support client projects.
The financing of consultancy
The development of consultancy products requires large capital investments
Productization of consultancy offerings transforms consultancy firms from labourintensive to capital-intensive operations. The development of consultancy products
requires large capital investments. The rise of managed services in the late 1980s
already contributed to the capital intensity of consultancy. Operating IT systems on
behalf of their client implies that the consultancies must invest in their necessary IT
infrastructure. Productization of consultancy further increases the capital intensity of
consultancy firms. An asset-based consultancy has a much higher need for capital
than a consultancy firm operating with a traditional people-based client service
model. The financial funding needs of an asset-based consultancy put tension on the
traditional partnership model. Funding in this model is based on the financial capacity
of the individual partners. Although most partners are wealthy, they generally cannot
meet the investment needs of capital-intensive asset-based consultancies. To fund
these investments, consultancy firms with a partnership model need to turn to
external investors. Private equity is a source of funds. We already outlined that some
partnerships transform into consultancy corporations or MPBs to issue shares on the
capital market.
The scalability of consultancy
‘Consultancy-as-a-product’, as opposed to ‘consultancy-as-a-service’, is subject to
other production economies. In the traditional client service model, scalability was
limited to the leverage that the type of consultancy projects allowed for. Moreover, the
number of consultants per partner is limited by the span of control of the managers
and the partner. Managers could manage only a limited number of consultants.
Partners could manage only a limited number of managers. With consultancy-as-aproduct, these limits no longer apply. Productization increases a consultancy’s
scalability to a large extent. Consultancy-as-software can be copied at almost zero
marginal costs. With the consultancy-as-a-subscription model, consultancy firms can
expand the number of subscribers without limits. Access to the proprietary data
assets of consultancies is also scalable. Because of their scalability, consultancy
products can be much more profitable than traditional consultancy services, provided
that firms reach a large enough scale to recoup their investments. Although not as
scalable as products, managed services are more scalable than traditional
consultancy services. The profitability of managed services can, therefore, exceed
that of the traditional services.
Productization increases a consultancy’s scalability to a large extent
The future of high-touch consultancy
‘High-touch’ consultancy is unlikely to completely disappear
Consultancy products are undeniably gaining popularity, but the traditional peoplebased service model of consultancy is certainly not doomed. We think there remains
demand for the legacy client service model. ‘High-touch’ consultancy is unlikely to
completely disappear. Some clients still want a face-to-face experience for some
consultancy projects. Traditional consultancy services are highly valued in these
cases. Moreover, we see some changes in the traditional services model. Because of
the focus on value transformation, consultancy projects tend to get bigger. The
leverage increases as well, in some cases up to 40 managers and consultants per
partner.
Like brain, grey hair, and procedural consultancy can co-exist in the market, so can
‘high-tech’ and ‘high-touch’ consultancy co-exist. ‘Hybrid’ consultancy firms do both
‘high-tech’ and ‘high-touch’ consultancy. But the combination of ‘high-tech’ and ‘hightouch’ under the roof of a single consultancy firm may cause tensions because the
business models of consultancy products and services differ. Clients of products and
services may be different and the knowledge and skills for providing products and
services may diverge. Therefore, the required people may vary.
The promotion to partner
In the traditional client service model, only consultants can become a partner. The
critical success factor for partners is selling projects. The ‘rainmaker’ partners are
king. In the ‘high-tech’ models, product development is most important. Therefore,
tech talents are critical. Because of their value to the asset-based consultancy, they
should also be able to become partners. But in the traditional partnership model, only
client-facing consultants can become a partner. Therefore, the traditional partner
model has come under pressure. The current partners will not want to give up the
model on their own. But the pressures can be so high that they will be forced to
reform the model. Otherwise, tech talent will prefer non-traditional new entrants that
are purely focused on high-tech consultancy. A potential solution to reduce the
tension between ‘tech’ and ‘touch’ in the traditional consultancy firm is to separate the
activities into separate divisions.
But in the traditional partnership model, only client-facing consultants can become a
partner
CONCLUSION
Since the 1870s, the classic form of a consultancy firm has been a professional
partnership. The corresponding client service model is a project whereby teams of
consultants work shoulder to shoulder with the client to develop a solution for the
client’s problem. Around the late 1980s, managed services start to rise. These
offerings form the first generation of asset-based consultancy. Around the 2010s,
productization of consultancy takes off. These software products lead to the second
generation of asset-based consultancy. The increase in consultancy assets is
accompanied by an increase in the financing requirement that exceeds the
partnership model’s funding capacity. Consultancy firms which want to add the new
‘high tech’ forms of consultancy to their ‘high touch’ model are confronted with the
differences between these models. This confrontation only increases the tension on
the traditional partner model. It is, therefore, likely that this partnership has had its
day or at least will lose its dominant position.
Running Case
PREPARING FOR THE CLIENT MEETING
Kate has received the invitation from Keyboard’s CEO Josh for an appointment at his
office. She sees this conversation as a great opportunity to become the first
consultant to work for Keyboard. This opportunity should not be missed. Therefore,
Kate decides to prepare thoroughly for this meeting. To begin with, this company and
its industry need to be researched. Kate must understand exactly what is going on in
Keyboard’s industry. However, as a partner, she does not have time to do such
research herself. That is why there are consultants. Kate needs to find a suitable
consultant who can do this research for her.
FINDING STAFF
She contacts Peter, who is the staffing manager of the consultancy. He is responsible
for the staffing of the projects. The staffing is largely automated. The staffing
department works with an IT system to identify candidates for projects. Currently,
there are only a few consultants available. Their last project has just finished, and
another project will not start for another week. Alice is identified as the most suitable
candidate for the job. She is one and a half years with NoSlideshow. Alice joined the
consultancy firm after her business studies. By now, she has successfully participated
in several projects, among which was a very successful e-commerce study.
SEARCHING THE FIRM’S KNOWLEDGE
MANAGEMENT SYSTEM
Kate asks Alice to search the firm’s knowledge management system. There is a large
IT system where the knowledge of the consultancy is stored. Alice can search in this
system for available information about e-commerce and previous projects that
NoSlideshow has carried out for other clients in the retail industry. Of course, this
information has been anonymized, and all confidential details have been removed.
After searching the knowledge management system, Alice should contact the
research support centre of the consultancy firm. The industry practice specialists for
retail and digital can collect data and conduct analysis to develop project proposals
and other preparations for prospects. After briefing Alice about her research, Kate
calls a few fellow partners around the world who she knows have carried out similar
projects. Of course, the partners will not share confidential client information, but they
are always ready to help each other. That is well-understood self-interest because all
partners share in the joint profit.
SUMMARY
The traditional organization form of a consultancy is the professional partnership.
Partners own and lead the firm. The partnership’s pyramid form features three levels:
partners on top, managers in the middle, and consultants at the bottom of the
pyramid.
The vehicle of the classic consultancy service model is the project. Partners sell
projects to clients. Next, they initiate a project and source the consultants and, if
applicable, support specialists to do the project work.
Clients pay a fee for the projects. Consultants bill their time. The billing rate multiplied
by the number of days spent on the project equates to revenue. The main costs of a
consultancy are the compensation costs of the consultants. The other costs are about
support specialists and the consultancy’s overhead. Revenues minus costs equate to
the profit. Only the partners are entitled to the profit.
Consultancy firms that spread out in IT system development (technology) and
managed services (a development since the late 1980s) typically leave the
partnership model. Because the financial funding needs of IT infrastructural assets for
managed services exceed the partners’ financial means, these asset-based
consultancy firms become managed professional businesses (MPB) with public
shares traded on the capital market.
Since 2010, we see a trend towards the productization of consultancy. This secondgeneration asset-based consultancy also faces financing needs beyond the means of
the partnership model.
Due to the addition of new services (managed services) and products, the
consultancy firm’s complexity has grown. This complexity is a huge challenge for the
traditional partnership organization.
REFERENCES
Clark, T. A. R. & Fincham, R. (eds) (2002). Critical Consulting: New Perspectives on
the Management Advice Industry. Oxford: Blackwell.
Kipping, M. & Clark, T. (eds) (2012). The Oxford Handbook of Management
Consulting. Oxford: Oxford University Press.
Kubr, M. (ed.) (2002). Management Consulting: A Guide to the Profession. Geneva:
International Labour Organisation.
Maister, D. H. (1982). Balancing the Professional Service Firm. Sloan Management
Review, 24(1), 15–29.
Maister, D. H. (1993). Managing the Professional Service Firm. New York: The Free
Press.
QUESTIONS
1. All else being equal, would you rather work for a professional partnership or a
managed professional business (MPB)?
2. How can small consultancies and independent consultants co-exist with global
consulting firms?
3. Is a procedural consultancy more profitable than a brain model?
4 THE MANAGEMENT CONSULTANT
INTRODUCTION
This chapter begins with a review of why people may apply to a management
consultancy firm. We also discuss what type of people consultancies look for and
outline the recruitment process. The following section describes learning and
development. We also look at the actual work of a consultant. Then we outline the
career development and the ‘up-or-out’ policy. The chapter ends with a conclusion, a
running case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand why management consultancy is popular with many students
Understand the recruitment process and what it takes to get a job offer
Identify the roles and responsibilities at different levels of the consultancy career
structure
Understand the career development system: what it takes to be promoted to
manager and partner
Identify the main activities in the daily life of management consultants
Understand (in)voluntary turnover of management consultancy staff.
REASONS FOR APPLYING
You may wonder: Why do so many (business) students look for a position in
management consultancy? We distinguish between three categories of motives for
joining a (top tier) management consultancy firm: learning, earning, and gaining
status.
Learning curve
Management consultancy is a good training ground for graduates. Therefore, it is
nicknamed the ‘graduate graduate school of business’. As a consultant in a (top tier)
firm, from day one, you will get considerable intellectual challenges. You will work on
challenging management issues for big-name clients. As you move from project to
project, you will see various management issues and experience a range of different
organizations from the inside. In addition to projects, you may follow all kinds of
workshops, courses, and other training programmes for your personal development.
The global consultancy firms offer rich international experience. These firms are often
very diverse in terms of nationalities. Their consultants get the chance to work in
international teams. Moreover, international consultancies stimulate temporary
transfers of consultants to other offices worldwide to broaden the consultants’
international experience.
Work hard – play hard
Moreover, management consultancy can be fun. It is inspiring to work with a diverse
group of highly talented and motivated – young – people. What is more, working at a
consultancy can also be entertaining. After challenging work periods, (top tier)
consultancy firms often organize luxury social events to relax and enjoy. Examples
include exclusive dinners, parties, and office outings, including skiing and sailing trips
abroad. This culture of work hard–play hard is an essential aspect of these firms.
Superior earnings
The (top tier) consultancies typically pay much better than the client-side. As a
management consultant, you will earn more than most of your peers in other sectors.
Some exceptions to the rule are the (top tier) investment banks and private equity
firms. Even though consultants’ salaries are high, the real pay-off is at the top of the
consultancy career ladder. If you make a partner, you will share the firm’s profits,
which can be substantial (see Chapter 3).
To make the consultants’ financial outlook even more attractive, you can get
promoted in management consultancy faster than in most other sectors. If you are an
outperformer, you make a career quickly, regardless of your age or tenure.
There may be all kinds of other benefits to the job. Consultancy firms may give you,
among other benefits, a premium company car. Furthermore, there may be generous
reimbursement rules for all kinds of expenses, including (international) travel and
lodging, dinners, and tuition for an MBA at one of the world’s top business schools.
Status
Working for a (top tier) management consultancy may enhance your status
considerably. As a management consultant, you will work for the (senior)
management of clients. You will cooperate with managers at hierarchical levels that
your peers who joined other sectors will take many years – if ever – to reach. While
your non-consulting peers are typically working in operations, you will advise on
these organizations’ (strategic) management issues. An essential aspect of
management consultancy – even at the entry-level – is that you can have a tangible
impact on the client’s important, strategic decisions as a management consultant. If
you are a management consultant with a prestigious consultancy firm, many people
will be impressed. Suppose you eventually decide to turn your attention to alternative
career opportunities. In that case, a couple of years with a prestigious consultancy
firm can be a springboard for your career. The world’s leading consultancies are
breeding grounds for chief executive officers.
Why not?
You may ask: Why not consider consultancy? Management consultancy can be
demanding. Long working weeks are not unusual and may include extensive
(international) travel. Consultants can also face tremendous pressure.
First, clients have high expectations and demands because they pay high fees.
Second, the consultancy firm’s ‘up-or-out’ policy adds to the pressure.
Moreover, consultants must be flexible. They have relatively little control over their
social agenda because consultancy is highly unpredictable. Consultants may have to
cancel social obligations at the last minute because the work demands them. For
example, unexpected client work may turn up, or data sets may be delivered later
than expected, or a new project may start earlier than expected. Always last-minute
things may arise that will have priority over social activities.
Lifestyle
For young people, the consultancy lifestyle may not be such an issue. For them, the
work is exciting, and staying in a luxury hotel with the project team and having
dinners together can be fun. Moreover, at a low age you may cope better with the
long hours. Furthermore, the youth may be more flexible as at their age they usually
have fewer social ties, such as spouses and families with children.
Action point
Search your network for people who started as a consultant one or two years ago.
REASONS FOR HIRING
Management consultancy is a people business. Even asset-based consultancy
depends on people. Therefore, consultancy firms not only compete for clients but
also for talent. As clients often find it hard to assess the quality of the consultancy
firm’s advice, they may instead look at the quality of the consultancy’s people.
Recruiting only the best and the brightest people signals quality to (potential) clients.
Such recruiting policy also contributes to the consultancy firm’s elitist image. You may
ask: What are management consultancy firms looking for in consultants?
Our focus is on the consultants, but consultancy firms also need specialists for the
support centres and people for the internal roles, such as Accounting, HR, IT, and
Legal. For the consultancy role, the firms search for candidates that combine different
qualities. Broadly speaking, the sought-after characteristics fall into six categories
(Figure 4.1).
Figure 4.1 The desired qualities of management consultants
1. Intellectual abilities
Management consultants should have strong intellectual abilities. They must be
able to diagnose and solve complex problems for clients. Consultants, therefore,
need to be analytical. They also must be original and creative thinkers because
clients look for fresh, ‘out-of-the-box’ insights. Furthermore, consultants need to
have good business judgement.
2. Inter-personal interaction qualities
3.
4.
5.
6.
Consultants need strong inter-personal interaction qualities to work with a
diverse group of people. Consultants need to understand people and quickly
sense psychological and political situations. They must develop relationships
with clients and other stakeholders. Consultants need to gain their trust. They
often work in teams. Therefore, they must be good team players. Consultants
also need to exercise leadership and influence clients and other stakeholders to
cooperate.
Personality
Management consultants need a strong personality. They need to exercise
leadership to create impact. Therefore, self-confidence, presence, and gravitas
are critical success factors for consultants. Authority gains respect and is a basis
for influence. But consultants also need to be friendly. They should be a pleasure
to work with. A sense of humour is a benefit.
Moreover, consultants need to be honest and have integrity. They need to be
responsive to feedback and be humble when required. Consultants may need to
withstand high levels of frustration. They also need to have a high tolerance for
ambiguity and uncertainty. Besides, adequately dealing with pressure and stress
is also essential. Furthermore, consultants require a high level of self-control.
Finally, they need the courage to defend their position and preserve their
independence.
Ambition and energy
Consultants need to be ambitious and energetic. They should have a strong
drive and dedication to their job. Consultants must be able to overcome
obstacles and get things done. They also must enthuse and inspire the client and
other stakeholders. We all have experienced that some people energize you
while contacting other people costs you energy. It goes without saying that
consultants should be of the first category. Management consultancy is a
demanding function. Consultants should have the stamina to keep up with the
high demands that the job puts on them. Only consultants with drive and energy
can withstand the burden of long hours, a diet of restaurant food, frequent travel,
jet lag, and stress in general.
Business knowledge and skills
Consultants need at least the basic knowledge and skills concerning the main
business disciplines, such as accounting, HRM, and IT. Business studies are
natural training backgrounds for management consultants. However, consultancy
firms also recruit people with other advanced professional degrees if their
educational achievements include a significant analytical training component. In
the twenty-first century, digital skills are increasingly sought after.
Relevant experience
Consultants benefit from their work experience. Until the 1950s, consultancies
used to hire experienced managers and professionals from the ‘industry’ – that is
non-consultancy sectors. After that time, an increasing number of consultancy
firms switched to hiring MBA graduates. However, since the 2000s, clients
increasingly demand industry and functional expertise and experience from their
consultants. Moreover, client value transformation is now the dominant offering.
Such projects also benefit from industry and functional expertise and experience.
That is why consultancies stepped up the recruiting of experienced people.
Diversity and inclusion
Consultancy in the twentieth century used to be dominated by white men. Nowadays,
consultancy firms strive for diversity and inclusion. They consider different
dimensions of diversity simultaneously, such as gender, race, ethnic background, and
sexual orientation. Most consultancy firms have special programmes to advance the
diversity and inclusion of various groups. Diversity and inclusion also require a focus
on cultural change to improve employees’ interactions with colleagues, direct
managers, and leadership, and avoid negative touchpoints.
RECRUITING
Recruitment is a critical function in management consultancy firms for three reasons:
Consultancy is a people business, and therefore recruiting people is crucial.
Consultancy firms typically have a relatively high turnover of consultancy staff,
which puts a large demand on the firms’ recruitment function.
Consultancy firms prefer to promote internal people rather than hire external
candidates for leadership positions. Recruitment must provide large numbers of
talented people with leadership potential.
Because of the popularity of management consultancy, these firms receive large
amounts of applications. To filter out the right people for the vacant positions,
consultancy firms use various stage gates to select the people that fit the consultancy
firm’s requirements. At each stage, applications may be rejected.
Application assessment
The selection process starts with the assessment of the candidates’ CV and
application letter or application form. The recruiters want to know why candidates
want to become management consultants. Do the applicants’ cover letters indicate
that the applicants understand what consultancy is about, or are they just attracted by
the image and remuneration of management consultancy?
Moreover, are there any signs that the candidates have thought about what makes
them attractive for the consultancy firm? Do candidates know what it takes to be
successful in management consultancy? Do candidates demonstrate an interest in
the focal consultancy firm? Recruiters may look at study grades for indicators of
analytical skills. They will be interested in high school grades for mathematics
because national exams are a good benchmark. Besides analytical skills, candidates
also must convince the recruiters that they have social skills. The CV should provide
evidence of good interpersonal skills; for instance, have candidates been active,
besides their studies, in extracurricular, organizational activities?
Invitation
Recruiters usually apply a list of assessment criteria. If the applications are positively
evaluated on these criteria, then recruiters will select candidates for further
assessment. The number of selected candidates can be large, and the opportunity
(time) costs of personal interviews by consultants are high. Therefore, consultancy
firms will use more efficient methods to further assess applicants. You may ask: What
are the more efficient assessment methods? Firms may use written tests to test
analytical skills. These tests resemble exams. Applicants need to answer (multiple
choice) questions about business problems. Some firms use computer games to test
your skills. Tests may also investigate the candidates’ personalities. Some
consultancies organize case workshops to test candidates. Candidates will work in
small groups on a business problem. Consultants will observe and evaluate how the
candidates as a group solve the problem and present their solution. The group work
will allow assessment of how candidates interact with their peers. During workshops,
the fit between the candidate and the firm is one of the critical criteria. The
consultants assess how well a candidate would fit within the firm.
Some firms use computer games to test your skills
Case interviews
Successful candidates will be invited for a round of personal case interviews. Only
candidates who meet the selection criteria will be invited for a round of (about three)
personal, face-to-face interviews at the firm’s office. The first round of interviews will
typically be with consultants of the firm. In the so-called ‘case interview’, the
candidate must solve a case about a client’s business problem. This selection
technique originated from the case teaching at Harvard Business School. The case
interview is structured as follows.
First, the interviewer puts some questions about the CV or motivation letter to the
candidate.
In the second part, the interviewer introduces a case and asks the candidate to
solve it.
Next, the interviewer asks the candidates to present their findings, conclusions,
and recommendations in a natural client–consultant setting.
In the final part of the interview, the candidate may ask questions of the
interviewer.
Problem-solving
The problem-solving part of the interview typically takes about half an hour. It forms
the most significant part of the interview. In some discussions, candidates will be
confronted with a data analysis question, a ‘brain teaser’, or an estimation question.
But the case is the most common form. It is an anonymized and stylized business
problem that the candidate needs to solve. For instance, an airline suffers a
significant loss and hires a consultancy firm for advice. How would you develop your
advice?
Structured thinking
Job candidates are expected to structure the problem first by breaking it down into
smaller pieces
Job candidates are expected to structure the problem first by breaking it down into
smaller pieces. Then they must develop hypotheses about these small parts.
Subsequently, they need to analyse facts to test their ideas. Applicants must extract
these facts from the interviewer. Based on the supported hypotheses, the candidate
must synthesize a possible solution to the problem. Applicants also have to defend
their recommended solution to the problem. However, candidates should remember
that the interview is not just about the answer. Interviewers are primarily interested in
how applicants solve the business problem. Chapters 6 to 9 will outline the problemsolving method of the world’s top tier consultancy firms.
Forms of cases
An alternative to the business problem is the data analysis case. The purpose is to
test how candidates work with data. Applicants receive a data pack in the form of
text, tables, and graphs. Together with the data pack, the candidates receive some
specific questions about the data. An example: you are presented with a graph. The
interviewer may ask you what you conclude from the given data. Applicants may also
be asked to estimate an answer to a question. For example: how many charging
stations for electric vehicles will be needed in a specific country? The challenge is not
to guess the answer but to develop a structured approach to an estimate.
Moreover, candidates will need to do some mental maths to arrive at a concrete
number. Interviewers use brain teasers to test a candidate’s creativity. Candidates
must solve a puzzle or answer a question that requires creative or so-called ‘out-ofthe-box’ thinking. For example, the candidate may move only one digit to make the
following equation correct: 42 – 14 = 2. The answer requires out-of-the-box thinking:
move the first ‘4’ in a diagonal direction so it becomes the exponent of the first ‘2’; 2
to the power of 4 equals 16; 16 – 14 = 2. This type of interview is frequently used at
the start to break the ice before a case interview.
The ‘fit interview’
Besides the case interview, consultants may also use a ‘fit interview’. The fit interview
is used to assess how the candidate would fit in with the firm’s culture. Does the
applicant embody the values that the firm is looking for? Is the interviewer convinced
that they want to spend many hours on projects together with the candidate? How
would it be to sit next to the applicant on a plane for a long flight? These fit questions
to assess the chemistry between both parties are always part of all interviews. They
are used even more for experienced hires, that is, candidates who want to join the
firm from the ‘industry’ (the client-side) or another consultancy firm. Experienced
candidates are typically moulded by previous employers. They may have more
difficulty fitting in with the culture of the hiring firm.
What do interviewers look for?
You may ask: What do interviewers look for during a case interview?
First, consultants want to test the candidate’s problem-solving skills. A case interview
is not just about ‘cracking the case’. To put it even stronger, it is not about the solution
at all. The interviewer wants to find out how candidates approach the case.
Applicants should therefore not just say that the answer is, for example, 250 million.
Candidates must show their line of thought. If an applicant goes a bit off-track, then
the interviewer will usually give hints and feedback.
Second, consultants want to test the candidate’s inter-personal performance. What
impression does the candidate make? This is not only about appearances, such as
clothing and body language, but foremost about behaviour. How does the candidate
interact with the interviewer? Almost always, the applicant does not receive upfront all
the information needed to solve the case. Candidates must put the right questions to
the interviewers to extract the hidden information. Interviewers will pay close attention
to how applicants extract the data and explain their train of thought. Can the
candidates create a conversation? Are the applicants friendly, confident, and a
pleasure to work with? Interviewers will also be interested to learn how candidates
act under stress. How do the applicants behave if they get stuck in their problemsolving attempt? How do they respond if their interviewers put pressure on them? Do
the candidates remain calm and confident in stressful situations? The interviewers
want to know whether they could send the candidates to clients.
Three rounds of interviews
Successful applicants are usually invited to three rounds of case interviews. The first
round of interviews usually consists of two or three interviews, each with a different
consultant. After the interviews with the candidate, the interviewers will get together
to systematically evaluate the applicant. Only if all interviewers unanimously conclude
that the candidate meets the firm’s requirements, then this person passes the first
round.
The second round consists of three interviews by managers instead of consultants.
The candidates who also pass the manager interviews will continue to the final
interview round. Then three of the firm’s partners – often including the managing
partner of the office – will put the applicants to the test. After successful completion of
the third round, the candidates will receive a job offer. Some high potentials have
offers from several top consultancies. For the consultancies involved, a high win
percentage of candidates with multiple offers is of great importance.
Assessment centres
Some consultancy firms may use assessment centres to appraise candidates. Such
an event could comprise a mixture of interviews, tests, and individual and group
exercises. Applicants may have to take psychological and intelligence tests.
Examples of activities are simulations and role-plays.
Application preparation
As stated before, management consultancy is popular among graduates. But the
recruitment process is challenging. This situation has led to various products and
services to help candidates prepare their job applications. There is a variety of books
and websites with tips and techniques for case interviews. Many business schools
have consultancy clubs where candidates together prepare for applications. There
are also specialized firms that train candidates in all recruitment processes, from
writing an application letter to handling the challenging case interviews. Moreover,
consultancy firms’ websites also provide candidates with guidance on applications
and case interviews.
Action point
You must prepare thoroughly for the case interviews because the other candidates
are also well prepared.
LEARNING AND DEVELOPMENT
The onboarding programme
The large consultancy firms offer a formal training programme for consultants that
helps individuals prepare for all positions from consultant to partner. In the first week,
new hires will have an onboarding programme in their own office. This programme is
mainly focused on practical matters. The newly hired consultants get access to the
consultancy firm’s computer systems and receive smartphones and laptops. They
also learn about the firm’s departments, systems, and procedures.
The offsite training
Later, the new hires will take a regional offsite training of a week, typically abroad. In
this week, they will learn about the basics of consulting. All pieces of training are
based on a (running) business case. An essential topic of this training is Structured
Problem-Solving. The newly hired consultants learn how to structure a client’s
problem. They will also learn how to use software tools to analyse data. Designing
(PowerPoint) slides and presenting to clients are also important topics.
Additionally, there will be some individual coaching of the new hires. There are also
social events for the new hires to better understand the firm and their peers. These
programmes are not only about knowledge and skills but also about the socialization
of new consultants. New hires are introduced to the values of the firm and other
cultural aspects. In the first year, consultants will have a second week of regional
offsite training, which is a continuation of the first week. This sequel of the basics
programme is about topics like personalities, client dynamics, presentation storylines,
‘elevator pitches’ to convince clients, data analyses, and the consultancy firm’s
various practice areas. After the week-long regional trainings, the new hires will
attend various shorter training pieces in their office.
Learning on the job
After the first basics training, newly hired consultants will work on their first client
projects. Learning on the job (on the project) is an essential source of knowledge and
skills for consultants. The project manager provides guidance, and senior peers help
if the new hire has questions. Consultants may also gain knowledge and skills by
observing the more senior peers, the manager, and the partner on their project. The
junior consultants learn their craft from the seniors. This is the idea of the
apprenticeship model. Project staffing also helps consultants to develop themselves.
Projects are selected based on the personal development needs of individual
consultants.
Mentors and buddies
Newly hired consultants may get a mentor, typically a manager or a partner. The
mentors guide their consultants, act as sounding boards, and provide developmental
feedback. Besides mentoring, firms may give buddies to the new hires. A buddy is a
consultant of the same rank who has been with the consultancy firm for one or two
years. The buddy can informally help the new hire get accustomed to the firm. New
hires can ask their buddy all the questions they may not ask their mentors because of
the formal relationship.
Action point
Find a sponsor you can learn a lot from and who is willing to help you.
Practice area networks
Newly hired consultants may also develop themselves by joining a practice area.
Practices cover functions (for example, digital, strategy, or organization) or client
sectors (such as, consumer products, financial services, or public sector). New hires
will learn more about these subjects and start to develop a specialization. A functional
or sector specialization is vital for the career. While all new hires start as generalists,
to succeed in the firm, they need to specialize. The selection of consultancy projects
plays an essential role in developing specialized knowledge.
Action point
As a starting consultant, you have to sell yourself within the consultancy. The partners
should be eager to have you on their project.
Development programmes for managers and partners
At the end of their term as consultants, persons suitable for a manager position but
who lack a business education are offered an MBA at a top business school. The (top
tier) firm pays for this education if the person, after graduation, returns to work for at
least a couple of years. The consultancy firm organizes regional or even global
training courses to prepare the selected individuals for their new roles and
responsibilities as managers or partners. Whereas training for consultants focuses on
consulting skills, the education for managers and partners focuses on leadership and
client development skills.
THE WORK OF A CONSULTANT
Project work
The question may arise: What does the working life of a management consultant look
like? Projects should take the largest share of the consultant’s time. The project work
is done in teams under the supervision of a manager. Managers design the project
approach. They divide the work into modules (parts) and allocate them among the
consultants. The consultants have their own modules which comprise data collection
and analysis. Based on their analyses, consultants develop insights into their clients’
issues. These insights form the basis of the advice to the client. Clients may also ask
consultancy firms to support the implementation of the recommendation. Then, the
consultant’s work mainly consists of making action plans for the client’s employees.
Consultants may also guide the client employees and monitor the progress of the
implementation trajectory.
Work in teams
Consultants typically do not operate alone but work in project teams that may include
client staff. Consultants may work shoulder to shoulder with client managers and
professionals to gather data and conduct analyses. Consultants may also interview
client managers and employees and put data requests to them (for example: we want
the monthly sales by country for the past 12 months). Sometimes, consultants may
delegate specific analyses to client employees who have experience and affinity with
these studies. Consultants also work with specialists of their own firm’s support
centres, such as R&D. Suppose the studies require in-depth knowledge of functions,
sectors, or countries. In that case, the consultants call in the help of the firm’s
specialists in these areas. For example, suppose consultants must conduct complex
data analyses. Then, they turn to the data scientists in the analytics support centre.
For slide design and report writing, consultants may also use the specialists in these
fields. These examples illustrate that the integration of other peoples’ work (the
consultancy’s specialists and the client’s employees) is an essential task of the
consultant. Therefore, inter-personal skills are vital for consultants.
Practices
On top of their project, consultants may join functional and sector practices. They
learn from the practice training and participate in internal (non-client) studies for
knowledge development. By participating in projects, consultants develop specialized
knowledge and, also very important, a network.
When consultants are not assigned to projects, they are ‘on the beach’
When consultants are not assigned to projects, they are ‘on the beach’. The best
consultants are always in high demand by the partners and are therefore never on
the beach. Consultants who perform less well will be asked less often by partners for
projects and are therefore more likely to be found on the beach. Any consultant can
be on the beach at some point due to the unfortunate timing of projects. For example,
a consultant’s old project has been completed but the new project cannot start for a
few days. But consultants should not be too long ‘on the beach’ because a
consultant’s utilization is essential for the management consultancy’s economics and
essential for the consultant’s career prospects. When not assigned to projects,
consultants may be involved in developing proposals for potential clients. Besides
projects, consultants also spend time on training and internal meetings. Consultancy
is a demanding job. Business travel may take up a substantial part of a consultant’s
time. In addition to the work, consultancy firms organize social events for relaxation
and team building. To balance the hard work, the firms provide opportunities for
relaxation, including dinners, outings, and sometimes even holidays.
The culture
The culture of consultancy firms is performance-driven, and the work requires a high
energy level. Ambition and energy are not for nothing critical hiring criteria.
Consultancies offer an inspiring and stimulating environment for ambitious young
people. Therefore, the non-partner workforce mainly consists of young talents. Their
morale is high because everyone has the potential to become a partner. All managers
and consultants are high potentials, otherwise they would not have been hired.
Having been selected by the consultancy, all managers and consultants feel like
winners. They are all full of hope and ambition.
Speak up
From the most junior consultant on the project, everybody in the consultancy is
encouraged to speak up
The culture of a consultancy has a strong client focus. The firm’s mission is to create
value for the client. From the most junior consultant on the project, everybody in the
consultancy is encouraged to speak up. The allocation of speaking time in both
internal and client meetings is not based on hierarchy. Everybody is encouraged to
ask questions and make suggestions to contribute to the success of the project. It is
important that the consultants also contribute to client meetings. When a consultant
does not say anything during a long meeting, the client might ask the consultancy
manager afterwards why this consultant was sitting at the table. The culture of
consultancy firms is also collaborative because consultancy is about teamwork. A
significant value is that consultants help each other out.
CAREER DEVELOPMENT
Pyramids
Both professional partnerships and managed professional businesses (MPBs) are
organized as pyramids. Consultants are at the bottom of the pyramid. In the middle,
we find the managers. The top is reserved for the partners (or the executive directors
in an MPB). The exact form of the pyramid varies by type of consultancy. Large
partnerships may split the partners into junior and senior partners. A junior partner is
responsible for one large client or a few smaller clients. At the same time, the seniors
carry responsibility for a client sector. The distinction between junior and senior
partners is a ceiling in the pyramid of the consultancy firm. The senior partners own
the firm and share the profit. All others, including the junior partners, work for the
senior partners. When you are promoted to senior partner, you need to buy in. The
newly appointed senior partners have to buy the stock in the firm. When they leave
(voluntarily or involuntarily) they must sell their shares back to the partnership.
All others, including the junior partners, work for the senior partners
Figure 4.2 outlines some critical characteristics for functions at different levels of the
pyramid. We identify the firm’s value-adding activity that is most closely related to the
role for each level. The figure also indicates the primary responsibilities for each
function.
Figure 4.2 Functions, activities, and responsibilities per level
Action point
Start building peer relationships on the client side as soon as possible. If you are
making a career, you will already have a network of potential clients when you
become a partner.
Specialization
All graduate hires start as generalists. But after about three years, consultants need
function and/or sector expertise. Therefore, the young advisors must build a clear
profile by carefully selecting their projects and joining one or more practice groups.
Moreover, they need to socialize to create a personal network. After all, consulting is
a people business.
Everybody hired for a consultancy role has partner potential. It is a selection criterion.
This must be so because consultancies promote from within. These firms do not
promote an outsider to partner. The room at the top of the pyramid is relatively tiny
compared to the basis. Therefore, most consultants will not make a partnership. You
may ask: What happens to the consultants who cannot become managers, and the
managers who cannot become partners?
The ‘up-or-out’ policy
Most management consultancy firms have an ‘up-or-out’ policy (or ‘grow-or-go’)
Most management consultancy firms have an ‘up-or-out’ policy (or ‘grow-or-go’). ‘Up’
refers to promoting an individual to a higher level in the firm’s hierarchy. An ‘out’
decision means that the individual must leave the consultancy firm. The firm offers
only two options. Either you move up the firm’s hierarchy – within a predetermined
period (the maximum time allowed for a promotion) – or you must go. Some
individuals may get promoted within the standard period, whereas some others are
let go before this period has elapsed. Firms may also vary in how strict they apply the
up-or-out policy. Some firms give some rejected candidates for the partnership a
second chance. After the rejection of their nomination for the partnership, they do not
have to leave the consultancy but may be re-nominated after a certain period.
Temporary positions
The ‘up-or-out’ policy means that consultants, managers, and junior partners are
temporary employees. They stay only for a certain period in a position. After that
period, they will be promoted (up), or they must leave (out). In contrast, there is no
predetermined maximum tenure for the senior partners. However, this does not mean
that these partners are always permanent. Senior partners must keep performing at
their own level. Whoever fails to meet the requirements of the senior partner will be
‘departnered’ or must leave. Senior partners must also leave when they have
reached a certain age (age varies by consultancy).
Performance appraisals
At periodic intervals, all consultancy staff and senior partners will be subjected to
performance appraisals. Senior partners appraise each other and the junior partners.
The junior partners appraise the managers, who in their turn appraise the
consultants. The reviews may provide important developmental feedback. What is
more, they are critical for career development. These assessments provide the
necessary information for the up-or-out decisions.
Performance appraisals are structured processes. The appraisal criteria reflect the
qualities that consultancy firms look for: intellectual, inter-personal, and personality
qualities. The specific requirements may look like this for consultants: problemsolving and insights, team and client interaction, and presence and productivity.
Figure 4.3 provides an example.
Figure 4.3 Performance assessment
The grading
The assessor will grade the person to be assessed for each criterion. On a (fivepoint) scale, the grades range from 1 (outstanding performance) to 5 (poor
performance). There is only limited room for promotion in a pyramid. Therefore, firms
use a forced ranking system. This means that the assessors are forced to distribute
grades for the individuals being assessed into a predetermined performance
distribution. The assessments must be divided into the five grading categories
according to a predetermined key. There is a maximum percentage of people that can
get a 1-grade. Only a few can go up. The others go out to make room for new hires
who enter the lowest pyramid level. The percentage that is promoted also depends
on the development of the firm. If the consultancy grows fast, there are many career
opportunities. When the revenue shrinks, the promotion opportunities decrease. If
there is a lot of voluntary departure at the higher job level, the promotion
opportunities also increase. Moreover, there is a maximum amount of time spent in a
function (consultant, manager, and junior partner). Typically, the limit is set at about
four years, but it may vary by company. Figure 4.4 visualizes the process.
There is a maximum percentage of people that can get a 1-grade
Figure 4.4 The up-or-out process
Outstanding performance
As an example, let us assume that a consultancy wants to distribute the assessments
equally over the five grading categories. So, in each category, one-fifth of the
individuals must be. The 20 per cent best performing individuals will be assessed as
outstanding performers and receive a 1-grade. These stars do not just shine in their
work on the project. They also show early on that they can develop networks. They
work on contacts and build a reputation both within the consultancy and with clients.
Social media, such as LinkedIn, offer an attractive platform for these stars to profile
themselves and stay connected with an expanding network.
If you stay in the ‘1-performance’ category during each appraisal, you will be
promoted to the next level after the standard time for the promotion. These people
are on track for senior partnership. Some top performers even get a promotion within
the standard time.
High performance
A 2-grade means very high performance. But unlike the ‘1-performers’, these people
are not guaranteed a promotion. They do have a high (for example 50 per cent)
chance of promotion. But the 2-performers must improve their grade to qualify for the
promotion. The assessors will provide developmental feedback, and the firm may
offer additional training and mentoring to help the 2-performers improve their
performance.
Meeting expectations
A 3-performance means that the assessed individuals meet the firm’s expectations. It
is enough for the present function, but it is not enough for promotion. Their
performance is satisfactory for the firm. Therefore the 3-performers are not asked to
leave before the end of the term set for their function. But if 3s fail to become 1s, they
must go at their job’s expiration date. An improvement from 3 to 1 is not realistic. In
principle, the ‘out decision’ has been taken for the 3s. The firm will keep these people
temporarily on board. The assessors will not explicitly communicate this
consequence to their 3-performers because they want to keep their 3s’ morale high.
Firms will typically help these ‘out-consultants’ to find new positions outside the
consultancy. They may even support the careers of their alumni, that is, help alumni
find new jobs. Firms do so out of understood self-interest. Satisfied alumni will
express themselves positively about the consultancy, recommend their previous
employer, or even hire their old firm if they are in a sufficiently high management
position.
Below expectations and poor performance
A 4-grade means that performance is below the consultancy’s expectations. An
improvement from 4 to 1 is virtually impossible. A 4-performance is not acceptable for
the firm. Therefore, the consultancy will not wait until the expiration of the 4performers’ term in their functions. These underperformers are asked to ‘consider’
alternative careers in the short run. Consultancies do not want to staff these
underperformers on client projects. Until they leave the firm, these people are put to
work in the office. They are no longer allowed to meet clients but must do internal
work. The consultancy will also offer to guide these people to a new job outside the
firm. Typically, they leave within a year. Grade 5 stands for poor performance.
Individuals with such a low grade must go in the concise run. People who act
unethically or violate laws can be fired on the spot.
Voluntary departures
The up-or-out policy causes an involuntary turnover of staff. But not everyone who
leaves has been denied a promotion. Some people leave the firm voluntarily. For
example, they are offered external positions that are too good to turn down, or they
simply do not feel like it anymore. Former consultants are called ‘alumni’. Most alumni
land in good positions. They become senior managers or successful entrepreneurs.
Even if they did not make partners, the alumni are still very talented (otherwise, the
firm would not have hired them).
Most alumni land in good positions
CONCLUSION
A career in consultancy is two-faced. On the one hand, it is gratifying. You learn and
earn a lot. It is not called ‘the graduate graduate school of business’ for nothing. On
the other hand, it is very demanding. You need to work hard and be flexible.
Moreover, only a few can make it to the top of the firm’s pyramid. Therefore,
consultancy careers are certainly not for everyone. Recruitment must be very
selective. The top consultancy firms hire only the best. But membership of such an
elite group is just the starting ticket. After joining the firm, the ‘up-or-out policy’
continues the selection process. This selectivity adds to the status of these
consultancies and makes them even more desirable employers.
Running Case
THE BRIEFING OF THE CONSULTANT
NoSlideshow’s partner Kate has received Josh’s, Keyboard’s CEO, invitation for an
appointment. It would be an excellent opportunity for the consultancy to acquire this
company as client. Consultant Alice is asked to support Kate in preparation for the
meeting with Josh. Alice has just finished a project for another company. It is Monday
morning. At eight o clock Alice has a working breakfast with Kate at the consultancy’s
office. Kate provides Alice with detailed information on the upcoming meeting with
Josh. She indicates what Alice needs to do, such as company and industry analysis.
It would be beneficial if Kate could show one or more valuable insights during the
meeting with Josh. That can help convince Josh that he should commission a
consultancy assignment to Kate.
CELEBRATING A SUCCESSFUL PROJECT
After Kate briefly explained what kind of insights she wants, Alice gets to work.
Before she can start working for Kate, Alice must attend a final meeting with the team
from her previous project. The partner, manager, and consultants on that project
come together to evaluate and distil critical insights and lessons from that project.
This knowledge will be checked for confidentiality and sensitivities and subsequently
stored in the consultancy’s knowledge management system. After the meeting, there
is a closing lunch in town to celebrate the project’s successful conclusion.
SEARCHING THE KNOWLEDGE MANAGEMENT
SYSTEM
In the afternoon, Alice logs into the firm’s knowledge management system on her
laptop to search for relevant information for Kate’s meeting with Josh. Alice also
contacts the consultancy’s research support centre and makes appointments with two
specialists. During her search in the knowledge management system, she finds a few
similar previous projects. Alice emails requests for further information to the
managers that led these projects. Besides the knowledge management system,
NoSlideshow also has an online system for training. In addition to the classroom
training, Alice regularly chooses a short online training. This afternoon she reserves
an hour to start a new training module. Figure 4.5 shows her working week.
Figure 4.5 The working week of Alice
INTERVIEWING AND READING
Tuesday morning begins with an interview with the digital practice specialist of the
research support centre. Alice spends time reading relevant study materials of the
digital practice to deepen her knowledge on that topic for the rest of the morning.
Based on what she has learned from the interview and the materials, Alice identifies
an opportunity for an analysis that may provide valuable insights. She contacts the
research centre and orders a specialist to collect the required data and carry out this
analysis. For the remainder of the working day, Alice continues her study of the
practice materials. In the evening, she has a meeting with her mentor, Ann. Ann is a
junior partner with whom Alice has regular meetings to discuss her personal
development and career. This time, Ann invited her to have the discussion over
dinner in town.
DOING SIMPLE ANALYSES
On Wednesday, Alice begins with some simple data analyses. The more complex
calculations will be done by the research support centre. She also starts reading
materials from the retail practice. Two of the experienced managers who Alice
approached for information are available on short notice. During the morning and
lunch, Alice has video interviews with them. In the afternoon, she has another
interview. This time she has a meeting with the consultancy’s retail practice specialist.
After the discussions, Alice takes the time to go through her interview notes and list
the most important insights. Next, she starts updating a document for the meeting
with Kate the following day.
UPDATING THE PARTNER ABOUT THE PROGRESS
The following day Alice continues to work on the update for Kate. Just in time, Alice
finishes the document. Alice briefly informs Kate of the insights she has gained. Kate
is pleased with the results and gives Alice some new assignments for further
research. Alice has a conference call with both the retail and digital specialists to
have them look at a few issues together during lunchtime. In the afternoon, Alice
starts working on Kate’s new assignments. She spends her time mainly on simple
data analyses and synthesizing the insights from the studies into a logical storyline
for Kate to use in her meeting with Josh. Alice has completed her work at the end of
the afternoon.
PRODUCING THE PRESENTATION
She can now design the story for Kate. Alice uploads the design file to the online
platform of the consultancy’s graphics centre. A professional PowerPoint presentation
is made there based on Alice’s story. Alice now must wait for the slides of the
graphics centre. The preparations for Kate’s appointment are now ready. On
Thursday evening, Alice has dinner in town with some colleagues she has become
friends with. Alice spends Friday on other activities. As a member of the recruitment
team, Alice has some case interviews with job applicants. After evaluating the
conversations with colleagues and the recruitment manager, there is the joint office
lunch. The Friday lunch is a tradition of the consultancy. On Friday, shared activities
ensure that the consultants see each other regularly and informally share knowledge.
In the afternoon, Alice attends a meeting of the retail practice. Partners, managers,
and consultants meet to discuss significant developments in retail and share their
knowledge. After the practice meeting, Alice joins the traditional Friday afternoon
drinks in the office. All employees meet there to conclude the working week
informally.
SUMMARY
Learn, earn, and status are three main reasons for applying for a consultancy
position. Candidates with strong intellectual and inter-personal qualities, strong
personalities, ambition, energy, the right educational background, and experience are
recruited by consultancies. The recruitment process resembles a funnel. After the job
application, candidates take a written test. Then multiple rounds of multiple personal
interviews follow. Only the best candidates are hired. The learning and development
of consultants consist of formal training and on-the-job training. The work of a
consultant is varied and intense. The professional pyramid determines the career
path. With each promotion, the roles and responsibilities grow. All consultancy staff
are periodically evaluated on 1–5 scales. There are maximum periods for each
function level. Only the best consultants are promoted to manager, and the best
managers become a partner. According to the ‘up-or-out’ policy, all others are asked
to leave. But this departure is less severe because the ‘alumni’ are often highly
sought after and have thriving careers outside their consultancy.
REFERENCES
Kipping, M. & Clark, T. (eds) (2012). The Oxford Handbook of Management
Consulting. Oxford: Oxford University Press.
Kubr, M. (ed.) (2002). Management Consulting: A Guide to the Profession. Geneva:
International Labour Organisation.
Maister, D. H. (1993). Managing the Professional Service Firm. New York: The Free
Press.
Sturdy, A., Clark, T., Handley, K. & Fincham, R. (2009). Management Consultancy:
Boundaries and Knowledge in Action. Oxford: Oxford University Press.
QUESTIONS
1. What would be the main reasons for you to choose a career in management
consultancy?
2. To what extent will the selection criteria differ between management consultancy
firms?
3. Can you prepare for the case interview in such a way that you are sure to be
successful?
5 SELLING A CONSULTANCY PROJECT
INTRODUCTION
This chapter begins with the ‘management consultancy cycle’. Successful consultants
do not limit themselves to a one-off sale of a project, but they set a process in motion
of client relationship management and repeat selling. Next, we discuss the marketing
of a consultancy firm. Marketing is about generating ‘leads’ or potential clients. The
following section outlines the steps in converting leads into clients. Subsequently, we
unpack the proposal for a project. Then we discuss the flywheel of consultancy. The
chapter ends with a conclusion, a running case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Know what the management consultancy cycle is
Understand the consultative approach to selling a consultancy project
Understand how clients may critically perceive consultants
Analyse the different needs of clients, as well as the clear and hidden hiring
reasons of clients
Identify the challenges for consultants when trying to sell projects
Critically reflect upon the rational and emotional side of the client–consultant
relationship
Identify the main elements of a project proposal and contract
Know what the flywheel of consultancy is.
THE MARKETING OF THE FIRM
The management consultancy cycle
We interpret management consultancy as a cycle, which is visualized in Figure 5.1.
This process starts with the marketing by the consultancy firm. Marketing is about
generating prospects’ awareness and interest in a consultancy project. Marketing
should generate leads, which are companies (or non-profit organizations) interested
in a project. It is a potential client or prospect. The partners of the consultancy firm (if
it is a partnership) need to convert the leads into clients. The partners need to sell a
project to the prospect. A consultancy project consists of up to three phases: analysis
of the client’s problem, advice on the solution to the problem, and assistance with the
managerial tasks of implementing the solution. After completing the project, the
consultancy focuses its marketing activities on the client to maintain the relationship
and generate interest in a new project. The cycle has to do with the limited duration of
projects. Perpetual consultancy product (software) licenses do not follow such a
cycle. The sale of consultancy products can also lead to interest in projects because
the products cannot take over all roles of consultants.
Figure 5.1 The management consultancy cycle
Partnerships versus MPBs
In this chapter we speak of partners. This function only applies to the professional
partnerships. Managed professional businesses (MPBs) do not have partners but
they do have similar roles. The counterparts of partners at the MPB are responsible
for the sale of projects. These people can have various titles such as director,
executive, or vice president. Everything that we write about the sales activities of
partners also applies to the MPB’s directors.
Action point
As a junior consultant, try to develop knowledge about selling consultancy projects
from the start.
Setting up a firm
As management consultancy is not a legally protected profession, it is relatively easy
to enter the management consultancy industry. Anyone can call themselves a
consultant, and many people decide to make consultancy their profession. You can
create a website, print business cards, and rent an office. The overwhelming majority
of starting consultancies remain one-man or one-woman shops. Only a few people
succeed in building a consultancy firm consisting of multiple consultants. You may
ask: Why is it so hard to develop a consultancy firm?
Getting clients
Developing a firm is about acquiring and retaining clients. Clients are the consultant’s
source of income. For most consultants, getting enough customers and sales to
support themselves is already difficult enough. They simply do not have enough
projects or funds to hire consultants and develop a multi-person firm. You may
wonder: How do consultants acquire clients? We use the marketing model of AIDA to
outline the client acquisition process or the ‘sales funnel’ (see Figure 5.2). AIDA is an
acronym that stands for Awareness, Interest, Desire, and Action.
Figure 5.2 The sales funnel
1. The consultants need awareness of potential clients. Potential clients should be
aware of the consultants. The consultant’s reputation is a significant advantage
of the well-known consultancy firms. But if potential clients do not know about the
consultant, how can that consultant expect these companies to become clients?
2. The potential clients should have an interest in the consultant’s services. The
successful, well-known consultancies benefit from an already existing interest in
3.
4.
5.
6.
their services. But starting consultancy firms need to create a demand for their
services.
The potential clients of the consultants need to have a desire for their services.
Here the successful, well-known consultancies also enjoy an advantage over
beginning consultants. These other, unknown or lesser-known, consultancy firms
need to make a lot more effort to create a desire for their services.
The consultants need to persuade the potential clients to take action, that is, to
purchase, or commission, projects to the consultants. In some cases, the
potential client asks the consultant to conduct the consultancy project. Still, in
most cases, the consultant must make an effort to get the potential client to sign
the contract for that project.
The consultant must execute the project so well that the client is satisfied.
Satisfaction means that the consultant exceeds the client’s expectations.
The clients’ satisfaction is a prerequisite for repeat purchases. If the satisfied
clients get new issues they will be inclined to hire the same consultants for this
new project. The value of consultancy is very difficult to determine prior to a
project. That is why positive experiences with consultants are of great
importance in client choices.
Creating awareness
The marketing department
How can consultancy firms create awareness among their prospects? Consumer
goods companies use advertising to create awareness. Consultancies may use
advertisements for job openings. But to generate awareness among candidate
clients, consultancy firms use other means. The marketing department of the
consultancy may create an attractive website. The site provides information about,
among others, the consultancy firm, its people, its capabilities, its offerings, and its
targeted client industries. The consultancy marketeers may use social media,
electronic newsletters, and other email to make prospects aware of the consultancy
firm and its offerings. The marketing people also provide traditional brochures and
publications about the work of the consultants.
The partners
In addition to consultancy projects for clients, consultancy firms also do research
projects
The partners of the consultancy firm also play an essential role in the creation of
awareness among potential clients. They ensure that they come into physical contact
with potential clients. To this end, the partners act in public. They reach potential
clients in public appearances. Partners will speak in public, for example, at
conferences of industry associations. They accept and encourage invitations to
presentations for meetings with potential clients. Partners also conduct interviews
with the media or provide material to the press or social media leading to publications
that mention them or their consultancy. Consultancy firms also research to create
news value. In addition to consultancy projects for clients, consultancy firms also do
research projects. Topics of research are current events and developments in sectors
that are relevant to existing and potential clients. To meet potential clients, partners
will also participate in relevant networks. They are in social and charity network clubs
where many top managers of potential clients are members. But partners will also
serve on the boards of cultural and charitable organizations where many fellow board
members are top managers of potential clients. Consultancy firms may also sponsor
events with a significant networking opportunity. Examples are suitable sporting
events (such as golf tournaments) or cultural events (such as classic concerts) with
great appeal to potential clients and good opportunities for informal contact with these
people.
Appearances
The physical office of the consultancy also plays a role in creating awareness among
potential clients. A representative office building in a good location contributes to the
desired image. Also not unimportant is the representativeness of the partners,
consultants, and other employees who have contact with clients. Consultancy firms
may have dress codes. For example, a global consultancy had a strict dress code
and this distinctive dress style allowed consultants of this firm who did not know each
other to single out their colleagues from afar at international airports. Consultancy
firms may even have rules about the type of cars that are allowed. For example,
many partners of a prestigious consultancy boutique had exclusive sports cars. Still,
they were only allowed to visit their clients with their more subdued but premium
sedans with any visible designation to the highest performance engine discreetly
removed.
Creating an interest
Clients’ interests
Potential clients’ awareness of the consultancy’s existence is only the first step on the
path to the sale of a consultancy project. The next step in the AIDA model is to
arouse an interest in the consultancy service among the potential clients. In this
phase, the marketing department can still play a role. But the partners play the most
crucial part here. You may ask: What determines whether potential clients are
interested in the services of the consultancy? Why would the potential clients be
interested?
Clients’ problems
Potential clients have a problem for which they are looking for a solution that they
cannot develop themselves
Let us return to the main reason why potential clients turn to consultants. Potential
clients have a problem for which they are looking for a solution that they cannot
develop themselves. To become interested in consultancy, potential clients should be
aware that they have problems that require consultancy services. If the potential
clients are aware of their issues, the partners no longer need to create this
awareness. But in many cases, the potential clients are not, or at least not sufficiently
aware of their problems. In these cases, the partners not only have to create
awareness about their consultancy firm, but they also need to create awareness
about the potential client’s problem. Potential clients do not need to have problems to
hire consultants because consultants can also help to seize new opportunities for
clients.
Three approaches
We distinguish between the three main approaches with which partners make their
potential clients aware of their problems or opportunities.
1. The consultancy has investigated the results of comparable companies in the
potential client’s sector; a competitive benchmark. The potential clients may not
be aware of any problem because their performance is satisfactory. However, the
consultancy’s research shows that these other companies are doing much better
than the potential clients. The study reveals insights that the potential clients do
not yet have. The partner shows that the potential clients lag behind the
comparable companies. In this way, the potential clients become aware of the
problem.
2. The partners present new or emerging developments in the potential client’s
sector that are relevant to the potential clients. The potential clients have not
considered these developments’ consequences for their business or not as far
as the consultants. For example, the consultancy partner shows the possible
impact of industrial robotization for a potential manufacturing client. This
candidate becomes aware that the consequences are much more significant and
more severe than she previously thought.
3. The consultancy firms have developed new approaches or tools for improving
the potential clients’ performance. Experience gained from previous consultancy
projects or insights from the consultancy’s research has led to new or improved
approaches to client problems. For example, the consultancy has a new
analytical technique to investigate the added value and efficiency of the client’s
operational processes even better. The application of this technique will enable
the potential client to improve her processes. The consultancy partner can show
how the consultancy firm has successfully applied this technique to other
companies, so the potential client becomes aware of the potential for
improvement.
Action point
Ask your consultancy partner if she can make the decision to hire you as a
consultant.
THE CONSULTATIVE APPROACH TO SELLING A
PROJECT
Awareness and interest give the consultancy partner access to the potential client.
But the partner is still less than halfway along the sales funnel or AIDA process.
Subsequently, the partner needs to develop the potential client’s desire for the
consultancy’s services and finally persuade the potential client to purchase the
project. Selling a project is a challenge for partners, especially for new partners, as
they typically lack sales experience.
Farming and hunting
Until the time of the promotion, the new partners were not responsible for sales but in
their new role of partner, they must be able to sell projects
New partners are outstanding managers because otherwise they would not have
been promoted to partner. Until the time of the promotion, new partners were not
responsible for sales but in their new role of partner, they must be able to sell
projects. Typically, new partners do not start with targeting potential clients but with
selling new projects to existing clients. This repeat business from existing clients is
called ‘farming’. Developing new clients is called ‘hunting’ (for these new clients).
Whereas new partners focus on farming, the most senior partners should do the
hunting, which is the most challenging form of selling projects. The ultimate challenge
is to bring in a client from the consultancy’s main rival.
Soft selling
Partners will not pursue ‘hard sell’ but choose ‘soft sell’. Hard selling can come
across as aggressive and backfire. Therefore, partners do not push the consultancy
services but pull the potential client towards their consultancy firm. Partners do not
make all kinds of claims about how good the consultancy services are. Instead, they
ask the potential clients questions that will induce these prospects to discover why
the consultancy services could be good for them. We will use the best practice
consultative selling approach developed by Neil Rackham (Rackham, 1988). This
approach consists of six steps, which we will discuss (see Figure 5.3).
Figure 5.3 The consultative approach to selling consultancy projects
Developing trust
As we already covered lead generation, we will start with the second step of the
consultative approach: developing trust of potential clients. It will be apparent that in
their first encounter with a potential client, partners cannot immediately start talking
about consultancy services. Such a hard sell will not work in consultancy. You may
ask: If my services are not a good opening for the conversation, should I address the
prospect’s problem first? You must certainly discuss the problem, but it is too early for
that in the acquaintance.
Earning the permission
The partners first need to earn permission to discuss the potential client’s problem
The partners first need to earn permission to discuss the potential client’s problem.
The prospects should first trust the consultancy partners. The partners need to gain
the trust of the potential clients. Moreover, the potential clients should perceive the
partners and their consultancy firms as credible parties to solve the problems. The
consultancy partners must put themselves in the position of the potential clients. The
potential clients are typically senior managers. High managerial positions are
necessary because the clients must have enough power to hire a consultancy firm.
The client’s concerns
The higher managers may have several concerns about the consultancy:
1. They are worried about the problems as they are under pressure to solve them.
2. The potential clients may fear that other stakeholders, such as the company’s
shareholders or lower-level managers and employees, will perceive the higher
managers as incompetent when they hire consultants to solve their problems.
These stakeholders may expect that the higher managers solve the problems
themselves because that is their responsibility.
3. By hiring consultants, the potential clients also take personal risks. In the
unfortunate case that the consultancy project fails, the higher managers may be
held responsible by their stakeholders.
4. The managers may have doubts about the consultants. They may doubt that the
consultants will deliver what they promise.
5. The managers may fear becoming dependent on the consultants and lose
control.
The partners will first have to address these concerns before there can be an open
discussion about the potential clients’ problems. In this step, the emphasis is on
asking the prospects questions and listening. The partners must show understanding
for the situation in which the potential clients find themselves. By demonstrating
empathy, the partners gain the trust of the potential client. This first step is about
building a relationship of trust with the prospect.
Understanding the situation
After having earned permission to do so, the partners may begin asking questions
that relate to the potential clients’ problems. Again, the emphasis is on asking
questions and listening. The partners should ask questions about the business
situation of the potential clients. It is essential to understand the context of the
problem first. Next, the partners need to develop an understanding of the problems.
The potential clients may already have their interpretations of the problems. Still, the
partners should put probing questions to verify whether this is the real problem
instead of a symptom. In other cases, the prospects may only have vague ideas or
notions about the problems. In all cases, the partners need to distinguish between the
symptoms (for example, the potential client cannot retain its top talent) and the real
problems (in the example: the potential client is not an attractive employer). If there
are important stakeholders (to be discussed in Chapter 6), partners need to interview
them as well.
The potential clients may already have their interpretations of the problems. Still, the
partners should put probing questions to verify whether this is the real problem
instead of a symptom
Identifying the problem
By asking the right questions, the partners discover and clarify the real problems of
the potential clients. The real issues will be the topic of the next chapter. The partners
may also find that the potential clients have unofficial, hidden reasons to hire
consultants (as discussed in Chapter 1).
Client’s unofficial reasons
The potential clients may want to use the consultants to legitimate solutions that their
companies have already developed. The consultancy firms need to fulfil the role of
rubber stamps on the prospects’ plans. Alternatively, the potential clients may want to
hire the consultants as political weapons. The potential clients may be engaged in
political battles and are looking for arguments to win these fights. The consultants
must provide the necessary argumentation. Or the potential clients intend to blame
unpopular decisions on the consultants. The consultants get the bad guys’ role, which
allows the potential clients to play the good guys. Finally, the potential clients may
want to hire the consultants as brokers of sensitive knowledge. The prospects want to
learn from the consultants’ knowledge obtained from previous projects for
competitors. Partners should think twice to sell projects for these unofficial reasons.
Refusal to sell such projects is not just about unethical practices but also about wellunderstood self-interest. Projects based on these shadowy reasons undermine the
consultancy’s reputation.
Client’s official reasons
Here we assume that the potential clients have official and legitimate reasons for
hiring consultants. There are real problems that the consultants must solve. The
partners must then define these problems and present their interpretation to the
potential clients. Of course, the partners should clarify these problems and explain
why these are the real problems. The potential clients and any key stakeholders
whose support is required should recognize these definitions of the problems. It is
critical to have these people agree on the partners’ descriptions of the problems. The
partners do not want them to say during the final presentation that the recommended
solutions address the wrong problems.
Envisioning the value of a solution
The potential clients may wonder: Why is this problem worth solving?
The next step is to get the potential clients to understand the value of solutions to the
identified problems. The potential clients may wonder: Why is this problem worth
solving? The partners should put questions to the prospects to let them discover the
seriousness of the situation. The partners help the potential clients with questions to
explore the problem’s negative impact. Next, the partners ask the prospects
questions about the benefits solutions would offer to the potential clients. These
questions induce the potential clients to discover the value of solutions to the
problems. We acknowledge that in most cases it is hard to assess the value of
management consultancy, certainly in advance of the project. But potential clients
should have a clear perception of the value of solutions before the partners should
prepare proposals for consultancy projects on these problems.
THE PROPOSAL
The project proposal
The consultancy partners should develop proposals for the projects. A proposal
typically consists of three parts (see Figure 5.4).
Figure 5.4 The three parts of the proposal
Project description
1. The consultancy partners show their understanding of the project. Previously, the
potential clients and the partners have developed a shared definition of the
problems. The problem description defines the scope or boundaries of the
project. The partners may also sketch the context of the problems.
2. The partners describe what is to be accomplished by the projects. They present
the purpose of the projects. The proposal describes the desired results for the
client, for example an organizational transformation or a performance
improvement. The proposal also provides performance indicators, such as profit.
With the help of these indicators, the client can identify the achievement of the
desired results. The partners also outline the deliverables that they intend to
provide to the clients. Examples of deliverables are a solution to the problem and
an implementation plan. The partners also state when, at what time, the
consultants will realize the deliverables. The proposal includes a schedule with
the project’s milestones.
3. The proposal describes the approach the consultants intend to take to generate
this output. The partners explain the methods and techniques for diagnosing the
problems and developing the solutions. The proposal also indicates the required
data and their sources. Moreover, the proposal makes clear who does what. The
project requires a clear division of roles and responsibilities between clients and
consultants. The proposal explains what the consultants will bring in, such as
their time, skills, knowledge, data, and possibly other resources. The partners
also specify what they require from the clients to complete the projects. The
clients may need to deliver, among others, liaison services, data, time and skills
of management and staff, office facilities, secretarial support, and ICT
infrastructure. Moreover, the proposal provides information about the project
organization, including the project team structure and the project board. Finally,
the proposal includes a work plan which outlines the intended activities, the
scheduling of activities, and the people responsible for each activity.
Impressing the potential client
To convince the potential clients to accept the proposal, the consultancy partners
must elicit a ‘wow!’ response on every page. Each page must contain something that
impresses the potential client. We provide three approaches to impress the
prospects:
Each page must contain something that impresses the potential client
The consultancy may have discovered a new phenomenon. Assume it is 1994
and a consultancy has researched the potential of the Internet for providing ecommerce. The consultants propose a chain of bookstores and how this
prospect may benefit from the Internet.
The consultants may also have discovered original new data. For example,
assume that it is 1999, just before the burst of the Internet’s stock market bubble.
A consultancy firm is the first to find out that most ‘dot.com’ companies are highly
overvalued. This is a relevant insight for brick-and-mortar prospects who
consider acquiring dot.coms.
But consultants can also develop an original view on existing data. The
consultants may uncover hidden insights. They can achieve such discoveries by
rethinking existing knowledge or by questioning hidden presuppositions. But the
consultancy can also develop an original view on existing data. For example, all
newspapers take for granted that all readers are unwilling to pay for news on the
Internet, but the consultancy discovers that many readers are willing to pay for
high-quality information. This is a relevant insight for prospects in the newspaper
industry.
Profile of consultants
The consultancy partners not only describe the projects and their desired results.
They also intend to convince the prospects of the consultancy’s capabilities for
implementing the projects. To assure the potential clients, the partners provide
information about the consultancy’s resources and experience. The proposal may
distinguish between, on the one hand, the individual team members’ skills and
experience, and on the other hand, the consultancy firm’s capabilities and knowledge
management system. The profile of the project team usually includes the resumes of
the proposed team members, which generally consists of a partner, a manager, and
the consultants. The firm’s profile comprises the capabilities and reference projects of
the firm’s relevant practice areas. For instance, if the proposal is about a take-over in
the banking industry, consultancy firms may provide a profile of their financial
services practice and their practice for strategy and corporate finance.
Terms and conditions
Contingencies refer to – unforeseen – changes in the project that are not accounted
for in the proposed project approach and fee
In this section of the proposal, the partners present the fees of the projects. How
much does the client have to pay for the project? The proposal also indicates the
schedule of payments. Besides the financial terms and conditions, this section of the
proposal contains how the consultants intend to control the project. A critical aspect
of control is how to deal with contingencies and disputes. Contingencies refer to –
unforeseen – changes in the project that are not accounted for in the proposed
project approach and fee. For instance, changing environmental conditions or
changing client demands may lead to additional work for the consultancy. The clients
need to pay extra for these services. The disputes stand for possible conflicts
between clients and consultants. For instance, the clients may not deliver the
promised data and skills (in the form of participation of client employees in the
project). Alternatively, the clients may not be satisfied with the quality of the
consultancy’s work. The partners propose how they intend to settle disputes, for
instance, via arbitrage or court order. Finally, the partners provide their firms’ general,
legal, and ethical terms and conditions. The moral terms and conditions denote the
ethical code of the consultancy firm or the code of the professional trade organization
of which the consultancy is a member.
Competition
Competitive bids for a project are often the result of the involvement of the potential
client’s purchasing department
We distinguish between two situations in which consultants develop a project
proposal. First, the prospect has only invited the focal consultancy partner to
propose. Two, the partner competes with other consultancies. Competitive bids for a
project are often the result of the involvement of the potential client’s purchasing
department. This department may organize a public tender for the project or invite
some competing consultancies to propose. The purchaser creates a request for a
proposal (RFP). If the consultancy partner competes with other consultancies, she
should convince the prospect that her firm is the one who best understands this type
of problem and develops the best solutions. In general, consultancy firms should
develop a competitive advantage. The partner will also need to account for the
competition when setting the fee for the consultancy project. Competition increases
the prospect’s bargaining power and thus puts the fee under pressure. The partner
may consider to try to win the project on price.
Action point
Do not discuss the fee before the prospect understands the value of a solution.
Setting the fee
You may ask: How high should the fee for consultancy projects be? Usually
consultants charge their time and material expenses. If clients value the consultants’
recommendations and assistance much higher than the consultants’ time
compensation and expenses, the consultants leave money on the table. The value of
the projects perceived by the potential clients determines the maximum that these
prospects are willing to pay for the projects. Potential clients will not pay more for
projects than they expect these projects to be worth. The minimum fee for which
consultancy partners are willing to offer projects is the marginal cost to the
consultancy firms. A consultancy’s marginal cost of a project is the increase in the
total cost of the consultancy as a result of delivering that project. The partners will
generally not be prepared to offer projects if they lose money on them. The partners
can set the fee between the potential clients’ valuation of the projects and the
consultancies’ costs of delivering the projects.
Client’s valuation
The potential client’s perception of the project’s value sets the maximum fee for the
project. The consultancy’s reputation, resources, and capabilities may also influence
the prospect’s value perception and willingness to pay. But the other way around, the
project fee may influence the prospect’s perception of the project’s value. Potential
clients expect that the project fees reflect the strengths of the consultancies’
capabilities and the value they will create. For instance, no potential client expects a
project by a top tier consultancy firm to be cheap. A low fee may even raise the
potential client’s suspicion. If it is that cheap, it cannot be good. Besides, supply and
demand factors influence the prospect’s willingness to pay a high fee for consultancy.
If there is a surplus of demand for consultancy, this willingness increases and if there
is a supply surplus of consultancy, the willingness decreases.
If it is that cheap, it cannot be good
Contingency fees
So far, we have discussed fees that are based on the value that clients expect from
the project. But the actual value delivered may also set the fee. Such a fee is called a
contingency fee. Contingency fees may be a way for the consultancy to capture a
(much) more considerable remuneration. This type of fee-setting is only possible if
clients can measure the projects’ results. For example, cost reduction projects lend
themselves better to contingency fees than projects for developing a growth strategy.
The impact of a cost reduction is more straightforward to measure than the impact of
a growth strategy. A contingency fee depends on the project’s delivered effects on the
client’s performance. After the closure of the project, the client or the consultants
measure the project’s performance impact.
Consultancy’s cost
We have already discussed the difficulties for potential clients in assessing the
project’s value impact, even after project completion. Therefore, potential clients may
partially base their value assessment on the consultancy project’s inputs. Most
project fees have a time and expenses basis, whereby time is the number of billable
days. The consultants multiply the number of days with the daily billing rate (see
Chapter 3).
Most consultancy firms are reluctant to compete on their billing rate. We discuss three
reasons.
A rate reduction has a very negative effect on the project’s profit.
It can also adversely affect rates for other clients. If other clients learn that the
consultancy offers lower rates, they will demand the same.
It may be hard to reverse a rate reduction on subsequent projects for the same
clients. Clients have become accustomed to the low rate.
Instead of reducing the billing rate, consultancy firms can reduce the amount of time
spent on the project or use cheaper consultants. The depth of the problem diagnosis
has an enormous influence on the consultancy’s time. The diagnosis should have
enough depth to satisfy the client. Still, the consultants should do no extra work of
which the client cannot see or appreciate the added value.
Consultancy’s expenses
The consultants’ reimbursable expenses for the project may include travel and
lodging. In addition, the consultants may invoice the costs related to third-party
services for the project, such as technical advice, as well as market research by
external services providers. It is about necessary services for the project, which the
consultancy could not or would not provide.
Flat and variable fees
Consultants who use a time-basis for their project fees have two options.
One option is the flat fee. The budgeted hours and expenses determine such a
fee. If the actual hours and costs exceed the budgeted amount, then the
consultancy’s profitability of the project will diminish. The consultancy takes the
economic risk.
The second option is a variable fee. The actual hours spent on the project and
the actual expenses set the variable fee. The more hours and the more costs,
the more the client needs to pay. Therefore, the economic risk rests solely with
the client.
THE FLYWHEEL OF MANAGEMENT CONSULTANCY
We look at the outcomes of the project in terms of whether the consultants solved
their clients’ problem and their clients’ satisfaction. Successful projects can set a
flywheel in motion (see Figure 5.5). The flywheel can be a virtuous cycle as success
breeds success. Successful consultancy firms gain more clients and become more
prominent.
Figure 5.5 The flywheel of management consultancy
Positive reinforcement
A successful project can lead to more successful projects
This wheel can be a virtuous cycle of positive reinforcement. A successful project can
lead to more successful projects. We need to think about how (potential) clients
decide on hiring consultants. The value of a consultancy project is hard to assess
before the commencement of the project. Therefore, a positive experience with the
consultancy firm plays a vital role in the hiring decision. That is why most business of
consultancy firms is repeat business. Once consultancy partners have sold projects
to clients before, it becomes easier to sell the next projects, provided, of course, the
consultants did an excellent job in their first project. Rather than being limited to a
one-off project, the client–consultant relationship extends to a series of projects. The
first transaction develops into a relationship. The consultancy becomes the client’s
preferred supplier for advice and implementation assistance just as status allows the
consultancy to sell more often and larger projects, thereby expanding its share of the
client’s wallet.
Client satisfaction
A successful project will strengthen the relationship between clients and consultants.
Satisfied clients will be willing to promote or recommend the consultants to other
clients and prospects. The satisfaction with the consultancy’s work will increase the
client’s willingness to act as a reference account for that consultancy.
Consultants’ reputation
A successful project will also contribute to the reputation of the consultancy. The
client and other stakeholders involved in the project may spread the good news about
the work of the consultants in their environment. As stated earlier, relationships,
references, and the reputation of a consultancy firm drive demand for new projects.
As stated earlier, relationships, references, and the reputation of a consultancy firm
drive demand for new projects
Consultants’ learning
Projects are an important source of knowledge and capabilities for consultants. They
learn from their projects (like learning on the job). Successful projects can be a
source of new insights and expertise. The amount of learning varies with the
newness of the issue. But even relatively familiar client issues offer opportunities to
strengthen capabilities, for example through building (more) efficient routines for
problem-solving.
Consultancy talent
Furthermore, success makes consultancy firms more attractive for talented job
candidates. Talented people are a vital resource for consultancies and the best
people want to work for the best consultancies. Therefore, successful firms have the
first choice in the job market. These firms can choose the best people so that the
competition must settle for the second choice.
Negative reinforcement
But the flywheel can also be damaging for the consultancy. Just as the consultancy’s
success can breed success, failure can cause trouble. A failed project will damage
the relationship between the consultants and the client. This damage will negatively
affect the consultants’ reputation. Clients with negative experiences with specific
consultancy firms will probably hire other firms for subsequent projects. The
disappointed clients will not want to act as reference accounts and will not
recommend these consultancy firms to prospects.
A failed project will damage the relationship between the consultants and the client
Suppose the bad news about the failed project gets publicity. In that case, it will
negatively affect the demand for that consultancy firm. Still, it will also adversely
affect the supply of consultancy talent. Talent will not like that negative publicity and
prefer a job at successful consultancy firms. But consultants can also learn from their
mistakes. In this way failed projects may contribute to the knowledge and capabilities
of the consultancies.
The sales pipeline
The sales pipeline (Figure 5.6) is somewhat similar to the sales funnel (Figure 5.2)
but takes the perspective of the consultants instead of the clients. The pipeline shows
the stages of the sales process.
Figure 5.6 The sales pipeline
Performance indicators
Consultants monitor this crucial pipeline process with performance indicators. An
important metric is the conversion rate. This is the ratio between the numbers in
successive phases of the pipeline. For example, the percentage of the target
audience that becomes a lead, or the percentage of proposal requests that leads to a
sale. The sales pipeline is also about client retention and repeat sales. Do the
consultants manage to hold onto the client instead of just keeping it a one-off project?
We have already spoken about satisfied clients who recommend the consultants to
their colleagues and peers. A prominent metric for satisfaction is the net promotor
score which was developed by Bain & Company’s Frederick Reichheld (Reichheld,
2003). This indicator is about the likelihood that a client will recommend the
consultants. The net score is the difference between the ‘promoters’ (high probability
of recommendation) and the ‘detractors’ (low probability). The recommendations of
the promoters lead to new leads. This is the flywheel in action.
CONCLUSION
If you become a consultancy partner, you have to sell projects. Selling projects is a
long process of creating awareness, interest, desire, and action by the potential
client. The marketing department can help the partners generate awareness and
interest. But the actual selling is the sole responsibility of the partners. Partners
should take a soft-sell approach and take it slow. The saying goes here: haste is
waste. A successful project sets the flywheel of consultancy in motion. The
momentum of the flywheel accelerates the growth of the consultancy. As a result, the
leading consultancies distance themselves from the pack.
Running Case
EARNING TRUST
Partner Kate of consultancy NoSlideshow has her first business meeting with Josh.
The CEO of Keyboard tells her that he has previously spoken with two of
NoSlideshow’s competitors. Kate feels the pressure and gets the urge to immediately
convince Josh that her consultancy is a much better choice for Keyboard. But she
manages to suppress this natural reaction and decides to take a completely different
approach to the conversation. Instead of selling her firm, she directs the discussion
towards Josh’s challenging situation. Working with consultants is new to him. Rather
than emphasizing the benefits of consultants, Kate asks Josh questions to discover
whether Josh may have any concerns about working with consultants. After a frank
discussion about the pros and cons of working with consultants, Kate decides to steer
the conversation in the business direction. Although she already has ideas about
Keyboard’s problem based on her experience and preliminary research, Kate resists
the temptation to present these ideas at this stage. Instead, she asks questions to
enable Josh to clarify the issue. Then Kate summarizes her interpretation of the
problem and urges Josh for confirmation. Only then, she brings up the conversation
on the benefits to Keyboard of a solution to the problem.
DISCUSSING THE APPROACH
With a clear picture of the value of a solution, Josh asks Kate what kind of solution or
approach she advocates. Although Kate has the document prepared by Alice in her
bag, she decides to resist the temptation to present it now. Instead, Kate thanks Josh
for his trust and informs him that she will work out a proposal based on his analysis of
the situation. Kate incorporates the information from the conversation into her
updated project proposal. When she presents this proposal to Josh two weeks later,
Josh responds enthusiastically and gives her the consultancy assignment. In the
parting exchange, Kate casually asks Josh why he chose her instead of the two rival
consultancies. Josh decides to be open and tells her the other consultants made him
feel stupid. The first consultancy had already presented a complete problem analysis
before talking to anyone at Keyboard. The second consultancy went one step further.
They already gave their solution to what they saw as Keyboard’s problem. Josh had
the strong impression that these firms did not want to understand Keyboard’s unique
situation and were only interested in selling standard solutions.
SUMMARY
Management consultancy can be thought of as a cycle of marketing, selling, and
delivery of a project to a client. After the project, a new process starts when the
consultancy will focus its marketing effort on that current client.
The marketing of the consultancy firm aims at generating leads for new projects.
Selling projects is converting leads into clients. Sales are the responsibility of the
partners. Soft selling is more effective than hard selling. The partners will use their
initial contact with potential clients first to develop trust. Then they will develop an
understanding of the situation of the potential clients. Having defined the problem, the
partners will help the potential clients envision the value of solutions. Finally, the
partners will convince the potential clients to commit to a project. A project proposal
consists of three parts: a project description, a profile of the consultancy, and the
project’s terms and conditions.
Consultancy can become a flywheel as successful projects contribute to the client–
consultant relationship and the consultancy’s reputation and resources. The
reinforcement sets in motion a virtuous cycle by which leading consultancy firms
distance themselves from the rest of the industry.
REFERENCES
Maister, D. H. (1993). Managing the Professional Service Firm. New York: The Free
Press.
Mandele, van der, L. M. & Parker, J. (2009). Changing the Leopard’s Spots: Renewal
of the Professional Firm. Amsterdam: FT Prentice Hall.
Rackham, N. (1988). Spin Selling. New York: McGraw Hill.
Reichheld, F. F. (2003). The one number you need to grow. Harvard Business
Review, 81(12), 46–55.
QUESTIONS
1. What considerations do you have to make if your client has unofficial reasons for
hiring you?
2. How should you respond if the client tells you that a competing consultancy firm
wants to carry out the project for a (much) lower fee?
3. How do you convince a prospect who has been a client of a rival consultancy
firm for many years?
6 IDENTIFYING A CLIENT’S REAL PROBLEM
INTRODUCTION
In this chapter we introduce the first steps of the problem-solving method of the
management consultancy firms in the ‘Advise & Activate’ group (see Chapter 2).
Their method is considered the gold standard of management consultancy. We begin
with clients’ questions and how consultants use critical thinking to identify the real
problems. Second, we outline how consultants develop an understanding of the
client’s context and the real problem. The following section discusses how to
understand the stakeholders. Subsequently, we outline a problem statement. As
clients also hire consultants for opportunities, we discuss how to identify an
opportunity. The chapter ends with a conclusion, a running case, a summary, and
questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand why clients can be wrong about a problem
Understand the benefits of a balanced approach to problem diagnosis
Analyse the context of a problem
Identify the real problem
Understand the concept of a performance gap
Know what a key question is
Know what a problem statement is
Understand the difference between problems and opportunities
Analyse positions and power of various stakeholders over consultancy projects.
CLIENTS’ QUESTIONS
Types of questions
According to the consultative selling approach, the partners of the consultancy firm
must gain the prospects’ trust. When these potential clients trust the partners, they
will be prepared to discuss their issues with the consultants. The prospects may have
various questions for the consultancy partners. Figure 6.1 distinguishes between
three types of questions.
Figure 6.1 Types of questions that prospects may have
Descriptive questions
Potential clients may ask consultancy partners: ‘Do we have a problem?’. For
example, a prospect’s two largest competitors are merging. This potential client wants
to know the consequences of this merger for their company. Prospects may also ask
consultants whether an issue is worth solving. For example, the voluntary turnover of
a prospect’s employees has been increasing. This potential client may ask: ‘What is
the impact of the turnover phenomenon and how structural is it?’
Explanatory questions
Another question of potential clients is: ‘Why is this happening?’. For example, why
do the preferences of a prospect’s customers change? Potential clients may ask:
‘Why do we have this problem?’. For example, a prospect’s profitability is under
pressure. The question becomes: ‘Why is our profitability declining?’.
Prescriptive questions
Potential clients may also ask consultants: ‘How should we solve this problem?’. For
example, a prospect thinks that their salespeople are not focused enough on their
customers. The question becomes: ‘How should we increase the customer focus of
our salespeople?’. Another prospect question is: ‘How to improve this?’. For example,
how to improve the effectiveness of the quality control process? Potential clients may
think they already have solutions and ask consultants about implementation: ‘How
should we implement this solution?’. For example, a retail prospect thinks that an
online retail channel is the solution and asks: ‘How can we build an online retail
channel?’. Potential clients may also ask consultants to compare alternative solutions
that the prospect has in mind: ‘Should we choose this solution or that alternative
solution to solve this problem?’. For example, should we offshore our IT function to a
low-cost country or should we outsource it to an external services provider to reduce
costs?
Reasons why potential clients can be wrong
For consultancy partners it is critical to spend time on the prospects’ questions and
the implicit problem definitions. The partners must critically assess these questions
because potential clients can be wrong about the problem definition. If the partners
accept wrong problem definitions, they cannot give good advice. In the best case,
they come up with solutions for the wrong problems. The partners should consider
the possibility of prospects’ misinterpretations of problems. Partners must check for
these mistakes. You may ask: Why may potential clients be wrong?
The partners should consider the possibility of prospects’ misinterpretations of
problems
Obsolete beliefs
First, prospects’ outdated beliefs can cause them to make mistakes in defining
problems. The potential clients may maintain some implicit, taken for granted,
assumptions about their business. Because these assertions are not clarified but
hidden, they are not up for discussion. Prospects may have specific ideas about how
things work in their companies or industries – ‘This is how we do things here’. For
example, the sales force of a prospect, a business-to-business company, focuses on
its equipment users, even though the purchasing authority has moved from these
users to the customer’s purchasing department. However, the prospect’s salespeople
have no contacts there. Potential clients may also be creatures of habit – ‘We always
do it this way’. For example, a prospect’s R&D department perfects a product before
Marketing & Sales can test it in the market. Such routines may have been successful
in the past, but the time has changed. Potential clients may also suffer from a narrow
perspective or blinkers. They do not look beyond their own positions or departments.
For example, a prospect, a communication manager, thinks that all problems can be
solved with communication.
Emotions
A second reason why potential clients may be wrong is emotions. Feelings may
prevent prospects from recognizing the real problem. For example, a top manager
doesn’t want to accept that the product he owes his career to is no longer
competitive. A well-known psychological phenomenon is the denial of the problem –
‘This cannot be true!’. Potential clients may not want to see the real problems.
Messengers of bad news are often poorly received. You know the saying – do not
shoot the messenger! Prospects may deny negative signals and persist in a chosen
course.
Unofficial hiring reasons
A third reason why prospects’ problem definitions are wrong is that these people
have unofficial hiring reasons. For example, a top manager needs the help of the
consultants to sideline a rival manager. We have discussed the unofficial hiring
reasons in Chapter 1.
Action point
Ask questions to clarify the problem instead of guessing what the prospect means.
CONSULTANTS’ CRITICAL THINKING
The questions behind the questions
Consultancy partners should take the time to identify the real problems. If prospects
already have questions, partners must be critical. Figure 6.2 provides examples of
counter-questions that partners may use to discover the questions behind the
prospects’ questions.
Figure 6.2 Prospect’s questions and consultant’s counter-questions
Prospects’ questions may include an implicit or an explicit problem definition. The
questions ‘what is happening’ and ‘why is this happening’ have an implicit problem
definition. Partners must explicate these problem definitions by asking prospects why
this happening is relevant for the prospect’s company. Asking why helps to verify
whether the prospect’s perceived problem is a real problem. For example, a potential
client asks: ‘How big is the voluntary employee turnover and how structural is it?’.
The partner asks this prospect: ‘Why is voluntary employee turnover a relevant
problem for your company?’. The prospect replies: ‘Certain employees who leave
take crucial knowledge of important business processes with them. It is in their
heads’. The partner continues the questioning: ‘Why is the departure of knowledge in
the heads of people a problem for your company?’. The prospect replies: ‘We do not
write down the crucial process knowledge, and these people do not share it with
colleagues’. The voluntary departure of certain employees appears to be a
knowledge management problem.
Advice requires prescriptive questions
To provide advice, partners need prescriptive questions. Only the answers to
prescriptive questions are recommendations. The answers to descriptive and
explanatory questions are descriptions and explanations. Descriptions and
explanations create less value for prospects than recommendations. If prospects only
ask descriptive and explanatory questions, then partners should lead them to
prescriptive questions. Not: What are the consequences of the merger? But: How
should we respond to the merger? Not: Why is our profitability declining? But: How
should we regain our desired profitability?
Suitable problems
Consultancy partners should select suitable problems. Not all problems of prospects
are (equally) suitable for a partner. You may ask: How to determine the suitability of a
prospect’s problem? Figure 6.3 provides examples of counter-questions that partners
may use to discover the questions behind the prospect’s questions.
Figure 6.3 Determining the suitability of a prospect’s problem
Partners may use the following questions:
1. Is this problem worth solving? The pay-off of a solution to this problem must be
enough to justify the problem-solving effort and the consultants’ fee. The partners
must assess how much the problem is costing the prospect.
2. Is a solution to this problem feasible? Can the consultants solve this problem?
There are two reasons why they can:
1. This problem is solvable. Again, we distinguish between two reasons:
i. This problem is not wicked. Wicked problems (Rittel & Webber, 1973)
are complex and have a strong political dimension because of powerful
stakeholders with conflicting interests. This chapter discusses wicked
problems after the stakeholder analysis.
ii. The prospect has the resources and capabilities for implementing a
solution. An example of lacking resources and capabilities is a
traditional retailer facing digital disruption by e-commerce start-ups. The
company has no financial reserves and cannot borrow money to pay for
the required investment in the digitization of its operation model.
2. Consultants have the resources and capabilities for solving this problem.
iii. The consultancy firm has solved this problem or a similar type of
problem before, or
iv. The consultancy has the industry and functional expertise to solve
this problem.
3. Should the consultants solve this problem? It depends on the consultants’
values:
1. Consultants should not accept prospects’ unofficial hiring reasons.
Consultants should not allow prospects to use them as rubber stamps,
political weapons, scapegoats, or knowledge brokers.
2. Consultants should not get involved in unethical practices.
1. They should not advise on unethical practices
2. They should not advise solutions with unethical implications
3. They should not advise clients in unethical sectors.
BALANCING THE PROBLEM-SOLVING APPROACH
A disciplined approach
If consultancy partners have good definitions of real problems, they can design
relevant analyses and define the appropriate data. Partners may spend substantial
time on problem definition. They earn back their time investment in problem definition
more than once because the data collection and analysis can be carried out much
faster because of focus on what is relevant to the problem. Consultants also spend a
relatively long time on drawing conclusions from the analysis insights. This
investment of time is justified because the synthesis of insights provides the basis for
valuable recommendations to the client. Such a disciplined approach pays off.
Cutting corners
Partners should not accept prospects’ problem definitions too fast and spend too
much time on data collection and analysis without understanding the real problem.
That is an unbalanced approach to problem-solving and resembles cutting corners. If
prospects are wrong, consultants can never come up with good advice. A good
advice solves a real problem instead of a perceived problem. Figure 6.4 compares an
unbalanced with a balanced approach to problem-solving.
Figure 6.4 An unbalanced versus a balanced approach to problem-solving
Uncritically adopting prospects’ problem definitions
Consultancy partners may uncritically adopt their prospects’ definitions of problems
for the following reasons:
Partners think they already know the prospects’ problems. The partners have
seen these issues before in previous consultancy projects.
Partners are reluctant to challenge their potential clients. They fear that
prospects will view a critical examination of the prospect’s problem definition as a
vote of no confidence.
Partners may have an urge to act fast because they want to prove their worth to
the prospects. Potential clients should get value for money. Therefore, partners
feel pressure to do something quickly and develop some insights fast. They want
to show their clients that the consultancy is putting in real effort in return for the
fee.
Partners may rush because they are under time pressure to meet their revenue
targets.
Collecting and analysing data without a proper problem
definition
For the beforementioned reasons, a consultancy partner has accepted a prospect’s
definition of a problem. This prospect assigns the project to the partner. The partner
has an urge to act fast and instructs the project manager to start data collection as
soon as possible. The consultancy team dives into the client’s data and spends a lot
of time on data collection. A lot of data is available because the Internet and the
client’s digital business processes produce ‘big data’. The consultants fall into the trap
of collecting as much data as possible. They end up with vast amounts of data.
Data mining without a problem definition
Big data are an excellent opportunity for data mining, which is extracting and
discovering valuable patterns in big data sets by means of statistics and machine
learning models. Consultants without a proper problem definition may produce as
many analyses as possible until time is running out. For example, big data on the
client’s customers allows for advanced analyses of customer characteristics and
behaviour. Because the client is waiting for the results, the consultants quickly draw
conclusions from their analyses. These conclusions can be valuable in themselves
but are they relevant to the real problem? Will the insights enable the consultants to
solve the client’s real problem?
UNDERSTANDING A CLIENT’S CONTEXT
The benefits of experience
Consultancy partners must understand the context of their clients. The context
comprises the organization and the environment, which is the sector and the
geography. Consultants often already have a lot of knowledge about the client and
the sector before starting the project. Many consultants specialize in a specific sector.
In addition, for many consultants, most project requests come from previous clients.
Most consultancy sales are repeat business. The consultants already know the client
and its organization from earlier projects.
The pitfall
The pitfall is that consultancy partners think they understand the client’s business
because they have done projects for this company or similar companies before
The pitfall is that consultancy partners think they understand the client’s business
because they have done projects for this company or similar companies before.
However, each company and each problem have their own unique characteristics. If
consultants do not take this into account, they will provide standard solutions that do
not fit the unique problems. Standard solutions are never as effective as solutions
that meet the unique aspects of the client’s business. Therefore, consultants should
strive for tailor-made suits instead of ready-to-wear.
The client’s business
Consultancy partners need to develop an understanding of the business of the client.
Consultants may use the business model canvas (Osterwalder & Pigneur, 2010).
Figure 6.5 presents the client’s business as an iceberg. Some aspects of the client
are relatively easy to investigate. This is the part of the iceberg that is above the
water surface. An example is the financial results if the client is obliged to publish an
annual report. Information about the client’s products and services is often also
available. Partners first have their managers and consultants research the clients’
businesses. A good starting point is publicly available data and a consultancy’s
proprietary knowledge management system. Consultancies often have a lot of
knowledge about client sectors and companies based on previous projects. Of
course, managers and consultants cannot find all relevant information about clients.
In terms of the iceberg, the more profound information lies under the water surface.
Such information is invisible to outsiders. Therefore, partners ask the remaining
questions to their clients. You may ask: What do partners need to know about their
clients’ businesses? We discuss the most critical questions that partners must have
an answer to.
Figure 6.5 The client company as an iceberg
Some questions to clarify the context:
Customers
Who are the customers of the client?
What and why are they buying from the client?
What are the customers looking for?
What do they value?
What alternatives do the customers have?
What are the substitutes for the product or service of the client?
Competitors
Who are the competitors of the client?
How does the client distinguish itself from the competition?
Business partners
Who are the suppliers, distributors, and other business partners of the
client?
Processes
What are the employees (in the various departments) of the client doing?
What do the client’s processes for creating a product or service look like?
Think in terms of a value chain.
What are the steps of these processes, and who does what? Draw a
process map.
Capabilities
What are the capabilities of the client for executing the processes?
Are there any capabilities with which the client distinguishes itself positively
from competitors?
What are the primary resources underlying the capabilities? Think of talent,
physical capital, and intangible assets such as brands and proprietary knowledge
(intellectual property).
What is the business model of the client?
How does the client make money? Low cost, high price, or something else?
Does the client have high or low fixed costs?
Culture
What is the culture of the client like?
How should people behave in this company to be successful?
How do the client’s people treat each other?
What do these people assume and believe about the company and the
industry?
Action point
Always draw a map of the client’s processes. It forces you to clarify your
understanding of the client’s business.
UNDERSTANDING A CLIENT’S REAL PROBLEM
Defining problems
Ask yourself: What is a problem? In this book, we define actors’ problems as
situations wherein these actors do not achieve their objectives. The actors’ realized
results are below their desired results. This definition is not limited to business. Actors
can be any organization or individuals. Problems mean gaps between desired and
realized results. This interpretation of problems implies that there can be no
definitions of problems without describing the desired results or objectives.
Objectives define problems
Ask yourself: If you have no objective, how can you have a problem? If you do not
want something, you cannot be disappointed if you do not get it. You do not have to
have an explicitly stated, written down objective. Your objective could be an unspoken
expectation in the back of your head. But you can only define a problem if you can
specify an objective. A problem is a negative deviation from your objective. Your
realized result falls short of the objective. You do not get what you want. A positive
divergence is not a problem at all. It is a windfall if your realized result exceeds the
objective. You get more than you expected.
Performance objectives
Clients’ objectives should be ‘SMART’
Clients’ objectives should be ‘SMART’ which is an acronym of criteria for objectives.
The letters stand for Specific, Measurable, Achievable (or Attainable), Relevant, and
Time-bound. Management consultancy is about the performance objectives of clients.
We define clients’ problems as situations wherein clients do not achieve their
performance objectives. Consultants can only determine clients’ problems if they
know their clients’ performance objectives. You may ask: What are the clients’
performance objectives? For companies, a critical performance objective is profit.
Nowadays, businesses do not solely focus on profit at the expense of everything
else. Companies increasingly also pay attention to people and the planet: the socalled triple-bottom-line of the three Ps: profit, people, and the planet (see Figure
6.6). People refer to the employees and citizens in society. Promoting diversity and
inclusion, fair pay, and good working conditions are examples of people-related
objectives. The planet is about the natural environment. Examples of planet
objectives are avoidance or minimalization of environmental pollution and waste of
ecological resources, such as water. People and planet objectives belong to
corporate social responsibility (CSR). Accounting for people and the planet is
necessary for companies’ social licence to operate.
Figure 6.6 The three Ps
The primacy of profit
To some extent, companies may realize the three Ps simultaneously as companies
can combine profit, care for people, and care for the planet. However, there comes a
point where companies must make trade-offs between more profit, more care for
people, and more care for the planet. Then it is about how the three objectives
compare. Are all three Ps equal or is one P slightly more important? Making profit is
not the sole responsibility of companies, as economist Milton Friedman claimed
(1970), but we think it is the primary objective. We believe the primary objectives of
business are not maximizing population well-being and the state of the planet. These
are the primary areas of concern for governments and non-governmental
organizations (NGO). Companies may also aim for people and planet-related
objectives, but profit remains their primary objective. Without profit, companies
cannot survive. Companies with insufficient profitability lack financial funds for
necessary investments and publicly listed businesses will fall prey to hostile
takeovers by rivals and corporate raiders.
The gap
Profit problems of companies causes these firms’ realized profit to be below the
desired profit or profit objective. There is a gap between the realized and the desired
profit level. In addition to profit problems, we distinguish people and planet problems
of companies. People problems of companies cause the realized results regarding
people to be below the desired people results. For example, there is a gap between
the realized employee satisfaction and the desired employee satisfaction. Similarly,
companies’ planet problems cause the realized results regarding the planet to be
below the desired planet results. For example, there is a gap between the company’s
realized amount of environmental waste and the targeted amount of trash. Due to the
dominance of the profit objective, this book focuses on problems and opportunities for
profit. However, the method outlined in this book is not limited to profit but can be
applied to any kind of objective, including people and planet.
Developments and events
To solve clients’ problems, consultants should analyse their clients’ situations. The
next chapter presents a method for analysing problems. This chapter is limited to
identifying gaps between realized results and objectives. We will restrict ourselves
here to the observation that there must be some events or developments inside or
outside clients’ organizations that has led to these gaps. There can be no effects
without causes. Such events or developments hurt clients’ realized results. The
location of these adverse events or developments can be inside a client’s
organization. For example, the client’s IT project for a crucial production process
failed, or a significant proportion of the client’s workforce is reaching retirement age.
But negative events or developments can also take place in a client’s sector or in
society. The Covid-19 pandemic is an example of an adverse external event. An
example of negative external developments for lessors of office space is the trend to
work from home which causes the demand for office space to decline. Figure 6.7
shows the development of a performance gap. Performance can relate to profit,
people, and planet.
Figure 6.7 A problem leads to a gap between the realized performance and the
objective
Operational problems
We distinguish between two classes of client problems: operational problems and
strategic problems. The main difference between the two types is the scope of the
problem. Operational issues have a narrow scope that is limited to one function or
discipline. For example, the quality of a product of the client, a manufacturing
company, is low because of issues in the manufacturing process.
Operational issues have a narrow scope that is limited to one function or discipline
Strategic problems
Strategic problems have a broad scope that spans many or all company functions
Strategic problems have a broad scope that spans many or all company functions. An
example, the client loses market share to competitors. Customers prefer products of
competitors over the client’s product. The client’s product design does not appeal to
customers, the product price is too high, and product delivery is late. The client has a
competitive disadvantage which spans various business functions of that company.
Poor understanding of customer demand points to the client’s marketing function. The
R&D function is responsible for an inferior product design. Late product deliveries are
about the client’s distribution function. The high price may be necessary to cover the
high costs of various business functions. Figure 6.8 compares the strategic problems
and the operational problems. We decompose both categories of problems into subcategories. The sub-categories do not exclude each other. For example, the client
with a strategic problem can operate in an unattractive industry and suffer a weak
competitive position. This book uses the problem-solving method of leading
consultancy firms in the ‘Advise & Activate’ group (see Chapter 2). As these
consultants focus on strategic problems, we also focus on this type of problem. But
the method also applies to operational issues.
Figure 6.8 Strategic and operational problems
Multiple problems
Consultancy partners must investigate whether clients have one or several problems.
In case of multiple problems, partners must find out if the clients’ issues are related.
Relationships between various operational problems in different functions can
indicate more significant, strategic problems. If clients’ multiple issues are related,
then partners define a single project. But unrelated problems justify separate projects.
Partners can evaluate these unrelated issues in terms of, for example, their urgency
and impact on clients’ profit, so consultants can prioritize these projects.
UNDERSTANDING THE STAKEHOLDERS
Victims of problems
Clients’ performance gaps have implications for certain actors. Profit gaps are
harmful to company owners or shareholders as they receive less or no dividend while
the company’s value and share price decrease. Profit gaps for extended period also
hurt other parties, such as suppliers and creditors. If clients suffer continuing losses,
they will have to cut back, and employees will lose their jobs. Ultimately, clients could
go bankrupt. But the clients’ problems do not hurt all parties. For example,
competitors can steal clients’ customers and their best employees.
A lot of parties may have stakes in the clients’ problems
A lot of parties may have stakes in the clients’ problems. These stakeholders can
suffer or benefit from the clients’ situation. Figure 6.9 shows some examples of key
stakeholders. The two-sided arrows indicate the mutual influence of problems and
stakeholders. Problems can affect stakeholders, but stakeholders can also cause
problems.
Figure 6.9 Some key stakeholders
Problem causers
The next chapter outlines the analysis of problem causes. But here, we discuss the
parties inside or outside the client’s company who may cause events or
developments leading to performance gaps. They can do this on purpose (like
competitors), accidentally, or because they could not do better (like clients’
employees). Clients may have bad luck. But clients’ employees may also fail and
cause problems because they lack skills, knowledge, or time to do things right. In
addition to persons who directly caused problems, there are those who are
responsible for these people, like (higher) managers. Both professionals causing
problems and their responsible managers are stakeholders in these issues.
Support of stakeholders
To analyse and solve problems, consultants need support from specific stakeholders.
To understand problems and their causes, consultants can benefit from insights from
stakeholders who have experience with these problems. Stakeholders directly
dealing with problems often have good ideas of what is going on. Examples are
employees who work on the factory floor or who have face-to-face contact with
customers and suppliers. Customers and suppliers can also provide valuable
information about problems. These stakeholders often also have ideas about possible
solutions to these problems. Inclusion of stakeholders in problem analysis improves
the consultants’ recommendations and also creates support for these solutions.
Various internal stakeholders, such as the company’s owners, managers, and
employees need to accept, approve, and implement the consultants’ advice. Besides,
external stakeholders – like governments, NGOs, and media – may have to accept
and support specific solutions to clients’ problems.
More than intellectual puzzles
The above discussion about stakeholders shows that consultancy projects are more
than intellectual puzzles. Real-world consultancy projects are not comparable to
solving business cases in classrooms. Solving real-world problems is much more
than studying 15-page case documents with texts and tables about historical issues.
Consultants are in the middle of live cases, along with many stakeholders, each with
their own interests. Some stakeholders want to help consultants, while others will
work against them. Before they can deal with them, consultants need to identify the
stakeholders. Consultants who receive new assignments from previous clients have
the advantage of already knowing these clients and their organizations. However,
each issue brings its own stakeholders. Therefore, different projects of the same
organization may have various stakeholders. That is why consultants must still make
inventories of stakeholders with new assignments for existing clients.
Identifying the stakeholders
To identify the stakeholders in problems, consultants can use the following questions:
1. Who are affected by the client’s problem? Distinguish between stakeholders who
suffer and who benefit from the problem.
2. Who caused the client’s problem? This question may be hard to answer in
advance of the problem analysis. However, consultants or clients may have
ideas about responsible stakeholders.
3. Who are needed for the consultancy project? Which stakeholders do consultants
need for problem analysis, solution development, and solution implementation?
4. Who can frustrate the project or even cause project failure? Which stakeholders
have an interest in project failure and have the power to force such failure?
The answers to the four questions provide a complete picture of all stakeholders in
the project. We acknowledge that answers to these questions can overlap. Some
stakeholders are affected by problems and needed for projects. Moreover,
stakeholders causing problems may also suffer. Finally, stakeholders needed for
projects may also be able to frustrate projects.
Stakeholders’ power over consultancy projects
Different types of stakeholders require treatment that fits their characteristics
The question arises of how consultants deal with stakeholders. Consultants need to
distinguish between the different types of stakeholders because the stakeholder does
not exist. Different types of stakeholders require treatment that fits their
characteristics. The saying is ‘different horses for different courses’. You may ask:
What are the relevant differences? We focus on two key differences: power and
alignment. First, we discuss stakeholders’ power over consultancy projects. Are
stakeholders needed for the project (Question 3), or can they cause project failure
(Question 4)?
There are several sources of power. An important one is possession or control over
resources that are critical for projects’ success, such as data, knowledge, networks,
people, and budget. Projects may also need approval or support of stakeholders with
legitimate authority, such as the media. This is social or informal power. External
stakeholders, such as regulators and governments, may have legal and political
power over the project. Other external stakeholders, like the client’s suppliers,
customers, and competitors, have market power. Not all stakeholders are equally
powerful. Consultants prioritize the most powerful ones.
Stakeholders’ alignment with the client
The question arises: how will powerful stakeholders use their power? This brings us
to a second key difference between stakeholders: their alignment with the client.
Clients want to solve problems but do stakeholders want that too? Some
stakeholders, such as competitors, benefit from problematic situations. Moreover, if
stakeholders want solutions, do they want the same solutions as clients? For
example, the client’s management and employees may have different preferences for
solutions. Stakeholders may prefer different solutions. Here the answers to Question
1 (suffer from problems) and Question 2 (cause problems) become relevant.
Consultants must look at stakeholders’ interests and values. They should be aware of
hidden personal agendas of stakeholders. Stakeholders can pay lip service to clients
but secretly follow their own plan. They say ‘yes’ but secretly mean ‘no’.
A stakeholder map
We distinguish between a range of stakeholder alignment situations. On the one
hand, stakeholders can be fully aligned with clients, but on the other hand, they may
be fully misaligned. Based on their power over the project and their alignment with
the client, consultants map the stakeholders. Figure 6.10 shows the resulting map of
stakeholders – our interpretation of Mendelow’s ‘Power-Interest Grid’ (Mendelow,
1991). The horizontal axis measures the extent to which stakeholders are aligned
with the client. The vertical axis is about the stakeholders’ power over the project.
Stakeholders fall into one of the map’s four quadrants.
Figure 6.10 A power-alignment map of stakeholders
Powerful aligned stakeholders
We distinguish between four broad categories of stakeholders. The most important
category for consultants is powerful aligned stakeholders. These stakeholders are
critical for the success of the project. Consultants may need three things from these
stakeholders:
They need these stakeholders to provide data for problem analysis.
Consultants benefit from these stakeholders’ insights into problem causes and
possible solutions.
These stakeholders must support recommendations. The support can be
approval or acceptance of advice but also implementation.
Although these stakeholders are aligned with the client, consultants should not take
their support for granted. These stakeholders may lack understanding of the problem
or have wrong ideas. Moreover, conflicting stakeholders may manipulate aligned
stakeholders. Therefore, consultants must inform the powerful aligned stakeholders
about the project and convince them to actively support the project.
Powerful conflicting stakeholders
The second most important category comprises powerful conflicting stakeholders.
Consultants must understand the dangers of these stakeholders as they can
undermine projects. Therefore, consultants can perform a so-called pre-mortem
analysis of projects. It is a thought experiment. Assume that you are a few months
on, and the project has failed. Try to imagine how powerful conflicting stakeholders
could have caused the project to fail. Then try to assess the opposing actions of
these stakeholders. Ask yourself: How significant is the impact of each action, and
how likely is it? Then develop plans for preventing the actions with the most
significant impact and likelihood. In general, consultants can do three things to avoid
such stakeholders’ actions.
1. Consultants or client’s top management can convince these stakeholders that
the project is also in their interest. As a result, the stakeholders move to the right
on the map. For example, a client’s works council is strongly against a
recommended dismissal of employees. Consultants can explain that their advice
may reduce jobs in the short term, but that it will increase employment in the long
term.
2. The client’s top management can reduce the power of these stakeholders over
the project. The conflicting stakeholders move downwards on the map. These
stakeholders may possess resources necessary for the project, like data,
insights, people, and budget. The client’s top management can try to find
alternative sources of help to reduce dependence on these stakeholders. Top
management can also take away the power of unwilling internal stakeholders.
For example, the leadership can reduce budgets or move people to less
important positions.
3. Client’s top managers can move conflicting stakeholders from the map. These
opposing actors are no longer stakeholders. For example, top management can
fire internal opponents or otherwise motivate them to resign with compensation
packages. An example of external opposing stakeholders with power over the
project is a competitor. The client can eliminate such conflicting stakeholders by
acquiring them.
Too strong opponents
Stakeholders with conflicting interests can be too strong for clients. In that case,
clients must negotiate. These stakeholders must get something in return for
supporting projects or not frustrating projects. Clients can also compromise on
solutions to problems. They can promise solutions that also meet demands of
conflicting stakeholders. Then clients adapt the criteria for solutions in part to these
stakeholders’ requirements. In rare cases, some powerful conflicting stakeholders
cannot be weakened or tempted to negotiate and compromise. Then projects are
impracticable and sensible partners refuse such assignments.
Weak stakeholders
Weak aligned and conflicting stakeholders are less critical to projects but still deserve
the consultants’ attention. Consultants treat them similarly to their more powerful
counterparts. Still, they spend less attention on them because they are less critical.
Consultants will involve weaker aligned stakeholders in projects. The support they
can give to projects should be secured. Consultants should try to convince weak
conflicting stakeholders. If that does not work, consultants must keep this group in
check.
Updating the map
The inventory of stakeholders is not a one-off exercise. During projects, consultants
must be alerted to changes in stakeholder maps. For example, during problem
diagnoses, consultants may discover that other parties are more responsible for
problems than they initially thought. Also, stakeholders’ alignment may vary with
types of solutions. For example, client employees may align with recommendations to
invest in learning and development but oppose solutions that mean mass layoffs.
Therefore, consultants need to update their stakeholder maps during all project
phases.
Action point
Only share your mapping of stakeholders with the client and your colleagues as it is
sensitive material.
DISTINGUISHING BETWEEN VARIOUS TYPES OF
PROBLEMS
Not all problems are alike. Figure 6.11 presents a simplification of a problem typology
by Alford and Head (2017).
Figure 6.11 A simple typology of problems
The vertical axis measures the complexity of problems. This is about the cognitive
challenge of problems. The horizontal axis is about stakeholder conflict. Conflicts
result from opposing interests and equal balance of power.
If interests of stakeholders conflict but the power of conflicting stakeholders is
unevenly distributed then the most powerful stakeholders win – their interests
dominate. The dominant stakeholders define the problems and the evaluation criteria
of solutions. An example are internal stakeholders of companies where senior
management dominates. In terms of Figure 6. 11, stakeholders’ conflict is small.
If interests conflict and there is an equal balance of power among conflicting
stakeholders then stalemates or deadlock situations arise. Conflicting stakeholders
cannot reach agreement on problem definitions and what constitutes good solutions.
Examples are national politics with political parties that all have equal power, or
geopolitics with equally strong countries. In terms of Figure 6.11, conflict is large.
Tame problems
Some problems are not complex and stakeholder conflicts are small or absent. For
example, the client is a manufacturing company with a product quality problem which
is due to too old production machines. The consultants advise to replace the old
machines with new ones. The managing director agrees but machine operators are
used to current machines and dread learning how new, more modern machines work.
But operators lack power to resist machine replacement. Clients do not need
consultants for these ‘tame’ problems as they can solve them themselves.
Complex problems
Other problems are complex, but conflicts are small or absent. For example, a client
company is losing more and more customers and neither the managing director nor
the employees have any idea why. This is a problem that lends itself to consultants.
Political problems
Problems can be simple, but conflicts are large. We return to the example of the
manufacturing company that needed machine replacement. It is a family business
with two brothers each holding 50 per cent of shares. They disagree on the choice of
the new machine. It is not a complex cognitive problem that lends itself to
consultants. This case is more suitable for mediators. Mediators must ensure that
conflicting actors develop a common understanding of problems and discover
common ground. Furthermore, mediators can facilitate negotiations and help find
compromises that are acceptable to all parties.
Wicked problems
Some problems are cognitively complex and stakeholder conflicts are large. Societal
examples are the world’s ‘Grand Challenges’ such as poverty, inequality, and climate
change. A business example is a manufacturing company that faces accusations of
some NGOs. These organizations hold the company responsible for environmental
pollution and call for a consumer boycott of the company’s products. It is the demand
of these NGOs that the company switches to a non-polluting production process. This
transformation would be very costly and undermine the company’s competitive
position. But consumer boycotts are also highly damaging. The large power of the
NGOs leads to a large stakeholder conflict. Consultants can advise on the problem’s
cognitive dimension (develop sustainability solutions), but the political dimensions
would benefit from mediators.
DEVELOPING A PROBLEM STATEMENT
Consultancy partners summarize their understanding of clients’ problems in ‘problem
statements’. You may ask: Why do partners need problem statements? Problem
statements are partners’ interpretations of clients’ (real) problems. Before projects
start, partners share these statements with their clients to ensure that clients and
consultants have shared understanding of the problems. Partners need to convince
their clients that these are the real problems. Clients must confirm that they want
these problems to be solved. Only after clients agree with the problem statements
can partners start the projects.
The key question
Problem statements consist of five parts. The first part is the problem definition, which
is defined as the key question that drives the project. Such questions look like this:
How should the client respond to the defined problem to achieve the performance
objective? The objective must be SMART. Partners avoid the verb ‘can’ and use
‘should’ instead. Clients are not interested in what they can do about problems
(possible solutions) but what they should do (the best solution). Projects are about
answering these key questions. The recommendations are the best answers to these
questions.
Decision makers
Problem statements also indicate the decision makers or the people who will make
decisions about the consultants’ advice. These people can decide to implement the
recommended solutions or reject them. Consultancy partners must know the decision
makers in advance. In any case, the clients are decision makers. But partners must
ask their clients in advance whether other actors are involved in decisions about the
advice.
Decision criteria
A related part of problem statements is the decision criteria of the decision makers.
Examples of criteria are the recommended solution’s performance improvement and
the ease of implementation. Partners need to know in advance what measures
decision makers will use to assess recommendations. Partners may have their ideas
of what clients want. To be sure, they must ask clients for confirmation and be open
for other criteria. It can have dramatic consequences when consultants develop
recommendations based on what they thought is important to clients. During the
presentation of the advice, consultants find out that their clients think something else
is important.
Constraints
The fourth part of problem statements is any constraints to the solution space. There
may be limitations to the solutions that clients want. First, clients may not want
specific options. For example, a client may not want solutions that involve moving
activities abroad. Second, clients cannot implement specific options. For example, a
client’s budget for investment is limited. Partners must know these constraints in
advance. Consultants do not want to dedicate entire projects to recommendations
that clients do not want or cannot implement.
The key stakeholders
The fifth part of problem statements is an overview of the project’s key stakeholders.
Consultancy partners identify (with the help of clients) the stakeholders and assess
their power and interests. Partners verify their stakeholder map with the clients before
projects begin. Clients and their consultants agree in advance how they will deal with
the various stakeholders. It is crucial for the success of projects that clients commit to
playing an active role in managing the stakeholders. Clients can decide that
influential stakeholders’ interests play a role in the decision criteria and constraints.
For example, a client accommodates trade unions by using employment as a
decision criterion for solutions. Another example is that a client meets climate
activists’ demands by setting constraints on the environmental footprint of solutions.
A memorandum of understanding
Problem statements are agreements between consultants and clients that express
shared definitions of problems. They provide a solid foundation for projects. Figure
6.12 presents a problem statement.
Figure 6.12 A problem statement
Action point
Never start a project without the client explicitly agreeing with your problem
statement.
UNDERSTANDING OPPORTUNITIES
Prospects without problems
So far, we have discussed problems. But prospects do not necessarily have to have
problems to hire consultants. Even companies without problems may use consultants
because consultants can also help clients identify and seize opportunities. For
example, the client may have an opportunity to acquire a major competitor. You may
ask: What is an opportunity in consultancy terms? Like problems, consultants frame
opportunities in terms of performance objectives. For examples, clients may have
opportunities to grow revenues or reduce costs. We already discussed that problems
are events or developments that cause clients’ realized performance to fall short of
their desired performance or objective. Consultants can measure these gaps
between realized performance and objective because these are facts.
Potential to raise the bar
Now imagine a client that performs well so far but would like to perform even better in
the future. Here consultants can help identifying opportunities for performance
growth. We frame opportunities as events or developments that can increase clients’
performance. Please note the use of the verb ‘can’. The performance increase can
happen in the future, but it hasn’t happened yet. Only when clients seize these
opportunities can they increase results. Opportunities allow clients to increase their
performance objectives. The extent of the objective increases determines the size of
opportunities. Opportunity gaps are the differences between old and new objectives.
Unlike problem gaps, we cannot measure opportunity gaps. As opportunities are
about expectations, consultants can only make assessments or guesstimates of
opportunities. In Figure 6.13, you see an opportunity gap between an old and a new
objective.
Figure 6.13 An opportunity leads to a gap between the old and the new objective
Problems versus opportunities
Because problems and opportunities have different analytical processes, consultants
need to make clear distinctions between these types of issues. Partners must identify
whether events or developments are problems or opportunities for clients. For
political reasons, clients may define problems as opportunities. But events and
developments can be problems as well as opportunities. Take for example the
robotization of industrial production. An industrial manufacturing client perceives
robotization to be a profit opportunity because robots allow the client to automate its
production and reduce costs. Robotization allows for an increasing profit objective.
But it also has negative effects for production employees who lose their jobs. As
robotization lowers demand for production workers it is a problem for a staffing
agency of production employees. Partners ask themselves: will specific events or
developments lower the clients’ performance? Affirmative answers indicate problems
for the clients. Partners can also ask themselves the alternative question: will events
or developments allow clients to increase their performance objectives? In case of a
positive answer, it is an opportunity. Figure 6.14 compares a problem with an
opportunity.
Figure 6.14 Comparing a problem and an opportunity
Clients’ definitions of opportunities
Clients may identify opportunities themselves. For example, a nationally operating
company believes international expansion is an opportunity and approaches
consultants for advice. Clients may ask consultants: Should we seize this
opportunity? For example, should we expand abroad? Clients may also order
consultants to develop a recommendation for seizing their opportunities. For
example, develop a strategy for international expansion. Clients may also think they
have opportunities, but they are not sure. These clients may ask consultants: Do we
have an opportunity?
Politics of opportunities
Both problems and possibilities may have political aspects. But the type of politics
differs. In the case of problems, clients and stakeholders may deny the problem’s
existence. Besides, stakeholders may blame problems on each other or on other
actors or events. ‘Don’t blame us because this problem is not our fault. It is because
of the R&D department, the suppliers, or the economic downturn.’ Opportunities have
different political aspects:
Pet projects. Opportunities may be pet projects or hobbies of powerful
stakeholders. For example, a top manager wants to work on his legacy just
before his retirement by acquiring a major competitor – ‘This acquisition is a
fantastic opportunity for our company.’ Clients and other stakeholders may have
blind faith in their perceived opportunities. They only have an eye for arguments
that underline their opportunities. Or they have debatable motivations for their
opportunities, like everyone else in the industry is acquiring companies, and we
cannot afford to miss this acquisition opportunity.
Excess cash. It could also be that clients simply have too much money in the
bank for which they are seeking destinations. Rather than paying out the excess
cash as dividend or spending it on buying back shares, it is much more exciting
for people to invest in new opportunities. When it comes to other persons’
(shareholders’) money, people can be more than willing to embark on risky new
adventures.
Over-ambition and over-estimation. We may also be dealing with over-ambitious
client managers who are eager to score and define opportunities. If the ambitions
are accompanied by over-estimation of one’s capabilities, the appetite for
opportunities only increases.
Boredom. But clients’ perceptions of opportunities can also arise from boredom.
Client managers are fed up with their boring current business and look for sexy
new challenges. If the responsibilities in the management team are not properly
assigned, the willingness of managers to pursue risky opportunities increases.
Critical thinking
If clients think they have seen opportunities, then consultancy partners must use
critical thinking. Are these really opportunities? Clients’ definitions or questions about
opportunities can form a consultant trap. The trap is to do exactly what clients ask
when clients were wrong. Therefore, partners must take sufficient time to understand
the perceived opportunities. They should critically ask clients: Why is this an
opportunity? Partners should continue asking why until they have good
understanding of the opportunities or until it is clear that there were no real
opportunities.
Consultancy partners must also understand clients’ contexts. There may be generic
opportunities for all players in clients’ markets. For example, autonomous cars
present a massive opportunity for the car industry. But this market opportunity does
not have to be an opportunity for a specific client. For example, if the client lacks the
resources to seize a market opportunity. Opportunities must be feasible for a specific
client. Only then can that client benefit from the opportunity.
When partners understand opportunities well, they should estimate how much clients’
objectives can increase because of the opportunities. Then they will formulate a key
question for the project: How should the client respond to the defined opportunity to
achieve the new (higher) performance objective in time?
We have discussed how consultants should assess opportunities that were perceived
by clients. Consultants may also identify opportunities for clients. Through their
previous projects in the client’s sector or in other sectors, or through non-client
related research, consultants may have discovered events or developments that
could present opportunities for their clients. Obviously, consultants will assess these
opportunities in the same critical way before presenting them to their clients.
Action point
If a client is enthusiastic about an opportunity, you may be tempted to go along with it.
But you add more value if you take a critical look at that opportunity.
CONCLUSION
All problems have symptoms. But consultants should focus on problems instead of
symptoms. Identifying real problems (opportunities) is a matter of critical thinking.
Consultancy partners will not believe clients at face value because clients may be
(intentionally or unintentionally) wrong about problems (opportunities). Therefore,
partners ask clients critical questions. Why is this a problem (opportunity)? Partners
will focus on clients’ results because performance data are clear and objective.
Consultancy projects are unlike doing a puzzle in an armchair; instead, it more
resembles a battlefield with all kinds of opponents but also supporters. Therefore,
partners must understand the projects’ stakeholders. Consultants who cannot
distinguish the opponents and supporters are lost. Sensible partners will always
share their problem definitions with clients before starting projects. After all,
consultants do not want any unpleasant surprises during the presentation of their
recommendations.
Running Case
THE PRODUCT RANGE
Two business graduates, Josh and Jane, founded an online retail company named
Keyboard in 2004. This company sells the following five product categories to
consumers:
Beauty (body care, make-up, perfume)
Computers and smartphones
Fashion and shoes
Health (nutritional supplements, over-the-counter medicines, weight loss
products)
Household care (cleaning products, detergents, paper)
Keyboard only sells in its home country where it competes with national as well as
international retailers. Why do its customers choose Keyboard over competitors? The
founders believe it is about low prices and a high level of service.
PROCESSES
Keyboard does not produce products but purchases its assortment from independent
suppliers. The company has its own warehouse for the storage of products and order
processing. Independent distributors deliver the products to the consumer. The
marketing function is responsible for customer acquisition. Keyboard has a website
where it sells its products. Figure 6.15 visualizes Keyboard’s processes.
Figure 6.15 Keyboard’s processes
THE RESOURCES AND CAPABILITIES
Keyboard has a couple of core capabilities. For example, the marketing capability is
well-developed, and the company is also good at procurement. Keyboard has 9,000
part-time and full-time employees (converted to 4,000 full-time equivalents or FTE).
‘Plant, Property, and Equipment’ is mainly the warehouse and the IT infrastructure.
Keyboard also has substantial intangible assets, such as brand recognition,
reputation, and customer base. The company culture is very growth-driven.
Keyboard’s ambition is to become market leader. But customers remain central – the
customer comes first.
THE CLIENT’S DEFINITION OF THE PROBLEM
In several investment rounds over the past years, Keyboard has attracted new
shareholders. After funding the company’s growth, the investors want an initial public
offering (IPO) to cash in on their investments. Keyboard grew its revenues rapidly to 4
billion euros last year and became the number two online player in its product
categories. Though sales have expanded, profitability has remained low compared to
the market leader, which is a global corporation. Figure 6.16 shows the profitability
comparison of Keyboard and this leading company. Keyboard’s operating profit
margin as a percentage of net sales is only a third of the leader. The low profitability
is a hindrance to a successful IPO.
Figure 6.16 Profitability comparison of Keyboard and the market leader
Keyboard’s CEO, Josh, believes his company needs to increase its scale to match
the leader’s profitability. Josh has discussed the scale problem with NoSlideshow’s
partner Kate. He has asked Kate to develop a growth strategy for Keyboard to
become the new market leader.
A CRITICAL LOOK AT THE CLIENT’S PROBLEM
DEFINITION
Kate decides to take a critical look at Josh’s definition of the problem. Is it true that
Keyboard’s relatively small scale causes its low profitability? Kate asks Alice to
benchmark Keyboard’s profitability with the market leader and other competitors.
Figure 6.17 shows the benchmark results.
Figure 6.17 A profitability benchmark analysis of the main competitors
Alice analyses whether profitability increases with scale. She visualizes such scale
effects with the dotted line (see Figure 6.17), which shows the relationship between
net sales and profit margin. The line’s slope indicates the size of scale effects. Two
horizontal lines at 5 per cent and 15 per cent present the margins of Keyboard and
the market leader. Next, Alice distinguishes between three parts of the margin gap
between Keyboard and the leader. The three double-sided vertical arrows indicate
these parts.
Keyboard’s scale-independent underperformance. The bottom arrow connects
the 5 per cent line to the sloping dotted scale line. According to the scale line,
with a turnover of 4bn euros, Keyboard should have had a margin of 10 per cent.
The company is 5 per cent below the scale line. This is underperformance that is
not related to a scale disadvantage.
The market leader’s scale-independent overperformance. Alice looks at what the
scale line indicates for the market leader’s sales of 8bn euros. Based on the
scale line, this company’s margin should be around 13 per cent. But the leader’s
actual margin is 15 per cent. This overperformance of three percentage points is
unrelated to a scale advantage. Alice draws a horizontal line at 13 per cent. The
arrow between the 13 and the 15 per cent lines shows the leader’s scaleindependent overperformance.
Keyboard’s scale disadvantage. Alice draws a third arrow between the sloping
scale line at 4bn sales and the 13 per cent line. The scale line at 4bn indicates a
10 per cent margin. The third arrow indicates a 3 per cent gap that corresponds
to the trendline rise as sales increase from 4 to 8 billion. This 3 per cent is the
leader’s scale advantage over Keyboard.
This analysis shows that only 3 out of the 10 per cent profit margin gap between
Keyboard and the leader is a scale disadvantage: 7 out of 10 per cent has other
causes than scale.
FIX THE PROBLEM BEFORE YOU GROW
Keyboard’s scale disadvantage contributes to the profitability gap, but it is not the
primary cause. Therefore, Kate will not prioritize scale, that is, growth. It is preferable
to fix the non-scale problems first. Solving these problems helps the company grow
as it is easier to grow if you do not have these issues.
Kate defines the problems in terms of the key question for the project: How should
Keyboard respond to non-scale and scale problems to achieve a profitability margin
of 10 percent in two years? She asks Josh about the decision criteria and solution
constraints. Josh replies that the solution’s profitability impact and ease of
implementation are the most important criteria. The main constraints are the time to
implement the solution (1 year). Moreover, a recommendation should not imply a
shrinkage of net sales. Josh does not want to shrink the company to profitability.
IDENTIFYING THE KEY STAKEHOLDERS
Keyboard’s investors, management, employees, distributors, suppliers, competitors,
and customers are key stakeholders. Kate creates a stakeholder map together with
Josh (see Figure 6.18). Investors like the project. The founders are enthusiastic, but
other top management team members would have preferred to keep the consultants
out of the door. Employees and lower management are concerned about a
consultancy project because they are afraid of efficiency measures and layoffs.
Distributors and suppliers fear that Keyboard will demand price reductions. The
market leader will not worry much, but smaller competitors rightly fear for a more
powerful Keyboard. Customers may benefit if Keyboard improves its business.
Kate discusses with Josh how to manage the various stakeholders. The priority is to
convince the other top management team members that the project is in the
company’s interest and that the consultants are crucial to the project’s success. Josh
will convince his lower managers and employees that their concerns are unfounded.
There is no need to fear dismissals.
Figure 6.18 Keyboard’s stakeholder map
SUMMARY
Problems and symptoms are related, but the differences are crucial. Only addressing
symptoms will not solve problems. Consultancy partners need to know what their
clients’ real issues are. Clients may already have defined problems, but they may be
wrong. Partners follow a systematic approach to identify real problems. They must
first understand the clients’ context before they can understand the real problems.
Consultancy partners frame problems as gaps between clients’ realized
performances and objectives. They formulate projects’ key questions as: How should
the client respond to the defined problem to achieve the performance objective?
Partners must also understand the stakeholders in projects. They summarize their
findings in problem statements. These documents contain the key question, an
overview of decision makers, decision criteria, solution constraints, and a stakeholder
map. Clients’ agreements with the problem statements form the starting point for
projects.
REFERENCES
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a Contingency Framework. Policy and Society, 36(3): 397–413.
Baaij, M. G. (2011). The Consultancy Method: From Problem to Solution. The Hague,
NL: Academic Service (Dutch language).
Baaij, M. G. with Reinmoeller, P. R. (2018). Mapping a Winning Strategy: Developing
and Executing a Successful Strategy in Turbulent Markets. Bingley, UK: Emerald
Group Publishing.
Friedman, M. (1970). A Friedman Doctrine: The Social Responsibility of Business.
The New York Times. Retrieved from www.nytimes.com/1970/09/13/archives/afriedman-doctrine-the-social-responsibility-of-business-is-to (accessed 2 August
2021).
Mendelow, A. (1991). Stakeholder Mapping. In Proceedings of the Second
International Conference on Information Systems, 7–9 December, University of
California, Cambridge, MA.
Minto, B. (1987). The Pyramid Principle: Logic in Writing and Thinking. London:
Pearson. Osterwalder, A. & Pigneur, Y. (2010). Business Model Generation: A
Handbook for Visionaries, Game Changers, and Challengers (Vol. 1). Hoboken,
NJ: John Wiley & Sons.
Rittel, H. W. & Webber, M. M. (1973). Dilemmas in a General Theory of Planning.
Policy Sciences, 4(2), 155-169.
QUESTIONS
1. Your client is a very authoritarian person who interprets your questions to clarify
the problem as a personal attack. How do you deal with this situation?
2. Your client is very excited about an opportunity that she perceives. You have just
discovered that there is no opportunity at all for your client. How do you explain
that to the client?
3. You and the client have identified some very powerful internal stakeholders with
opposing agendas. The client wants you to talk with these parties. Is that a good
idea?
7 STRUCTURING THE REAL PROBLEM
INTRODUCTION
This chapter outlines problem structuring, or framing, which is a fundamental
technique of the problem-solving method of the world’s leading management
consultancy firms in the ‘Advise & Activate’ group (see Chapter 2). First, we discuss
the reasons for structuring. Second, we discuss various problem decomposition
models that fit with varying levels of consultants’ familiarity with clients’ problems.
After outlining problem decomposition, we also explain opportunity decomposition.
After all, consultants not only solve clients’ problems but also help clients seize
opportunities. The chapter ends with a conclusion, a running case, a summary, and
questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the principles of structuring (decomposition)
Understand the value of decomposition
Understand the different problem-solving models of consultants
Answer-First Problem-Solving
Structured Problem-Solving
Sequential Analysis Problem-Solving
Understand the difference between the Sequential Analysis of problems and
opportunities
Understand the value of hypotheses
Decompose a key question into sub-questions
Segment problems and opportunities
Develop possible explanations of problems and opportunities.
MULTI-LEVEL PROBLEM-SOLVING
The micro-foundations approach
Consultants cannot solve clients’ problems at high levels of abstraction
Consultants cannot solve clients’ problems at high levels of abstraction. Problems
must be made concrete. Only concrete issues lend themselves to fact-based
analyses. We like to make the comparison between solving problems and eating
pizzas. No one can eat a pizza in one bite. At least most people cannot, and it would
be grossly ill-mannered. People cut pizzas into pieces that are small enough to eat
properly. You could say that people ‘decompose’ pizzas. To decompose is to break up
or divide the whole into its constituent parts. The benefit of decomposition is that the
parts are simpler than the whole. The pizza parts are less complicated to eat than the
whole pizza.
Decomposition and composition
Management consultants decompose high-level, abstract client problems into lowlevel concrete problem parts. They analyse these parts and combine the partial
analyses’ low-level insights into a high-level solution for clients’ problems. Whereas
the division into parts is called decomposition, the combining of the components is
composing. Consultants first use decomposition to analyse the client’s problem, and
second, use composition to develop a solution to that problem. Figure 7.1 visualizes
this process starting at a high abstraction level, then descending to a low level, and
subsequently rising back to the original high level. This figure was not invented by
management consultants but by the leading scientist Coleman. As the figure’s shape
resembles a bathtub, it is jokingly called ‘Coleman’s bathtub’.
Figure 7.1 A process of problem decomposition and solution composition
Problem decomposition
Consultants formulate clients’ problems as key questions. For example: How can the
client bring its profitability to the desired level within three years? Although the
objective is concrete, the question of how to realize that objective is abstract.
Consultants prefer fact-based analyses of problems because facts are concrete.
Therefore, consultants need to lower the level of abstraction to the fact level. They
decompose problems into their constituent parts. As consultants formulate problems
as questions, they decompose these questions into their constituent sub-questions.
Consultants call the sub-questions at the lowest level of abstraction ‘issues’. We will
come back to issues later. First, we address an obvious objection to decomposition.
Sequencing
Some people object to decomposition because everything relates to everything
We acknowledge that the parts of a problem are related. The relationships between
parts are self-evident. After all, the parts belong to the same whole. Some people
object to decomposition because everything relates to everything. That is true, but
that should not discourage us from decomposing problems. We can decompose
problems and take the reciprocal relationships between the problem parts into
account. It is not necessary to analyse the individual parts and the relationships
between these parts at the same time. We first examine the parts and then the
relationships. Doing one thing after another is sequencing, which is another
simplification technique next to decomposition. If you cannot do everything at once,
then you have to do things one after the other. The problem-solving method consists
of a sequence of steps. The different steps have different goals. The first steps of
problem-solving are about decomposing the problem into parts, whereas the later
phases are all about the relationships between these parts. In this way, consultants
address everything (parts and relationships), but in an organized, staged process.
Hypothesis development and testing
Consultants decompose the abstract key questions into sets of concrete subquestions, called ‘issues’. To answer these questions, you expect consultants to
collect and analyse data. Although consultants certainly collect and analyse data, that
is not the first thing they will do. Instead of starting with the data, consultants start
with possible answers to the sub-questions. Consultants may have seen similar
problems before, or stakeholders may have ideas about explanations for these
problems.
Of course, the consultants are not sure of their preliminary answers before they have
collected and analysed the data. They treat their possible answers as hypotheses for
the issues or sub-questions. First, they formulate these hypotheses, and second, they
test them. To test hypotheses, consultants design analyses and then collect the data
for these analyses. If the analysis outcomes support the hypotheses, then the
consultants have verified answers to the issues. But if the analyses do not support
the hypotheses, then consultants learn from these outcomes. They use these lessons
to improve their hypotheses or develop better ones. The process of hypothesis
development and testing iterates until consultants have verified answers for all
issues. Therefore, hypothesis development and testing are processes with loops.
Solution composition
Accepted hypotheses are verified answers to issues. As issues are parts of clients’
problems, answers to issues are partial answers to these problems. After
decomposing key questions into issues, consultants need to put the partial answers
to these sub-questions together to answer the key questions. Consultants compose,
combine, or synthesize partial answers into complete answers to the clients’
problems. To ensure the complete answers’ consistency, consultants consider any
relationship between the parts that constitute these answers. Composing is about
matching parts based on mutual relationships.
THE PRINCIPLES OF STRUCTURING
The Minto Pyramid Principle
the so-called ‘Minto Pyramid Principle’
Decomposition is not just breaking out of a whole into parts but should comply with
the so-called ‘Minto Pyramid Principle’. This principle for decomposition is named
after Barbara Minto, the first female consultant of McKinsey & Company. After she
departed from McKinsey in 1973, Minto founded a business for training in structured
thinking and writing. In 1985 she published her book The Pyramid Principle: Logic in
Writing and Thinking. This book became the consultancy industry’s ‘bible’ for
structured communication and problem-solving. In an interview with McKinsey
(published on the firm’s website), Minto claimed to have developed a logical
structuring tool which she coined the ‘Minto pyramid framework’. But during that
interview, she also admitted that the logical grouping of elements underlying the
pyramid goes back to Aristotle. The Minto Pyramid principle is mutual exclusiveness
and collective exhaustiveness of elements, abbreviated as ‘MECE’. Elements should
not overlap each other, and the set of elements should be complete. Minto
pronounces it like ‘Greece’, but most people say ‘meezee’. The principle basically
comes down to requirements for categories.
An example of a MECE decomposition
Figure 7.2 gives an example of decomposing a whole into a MECE set of
components. We decompose profit into its constituent parts by using a formula of
profit: Profit = (price – unit cost) x unit volume. These three elements are ‘MECE’.
Price, unit cost, and unit volume are mutually exclusive components which means
that there is no overlap. We acknowledge a relationship between price and unit cost.
A firm can set its price based on cost and a mark-up. Decomposition is only about
categorization of components not about (mutual) relationships between them. We
distinguish between categorization and causality. In the subsequent problem
explanation phase, consultants consider any relationships between components.
Price and unit volume are mutually exclusive. These components may also be
related. With some exceptions such as products bought as status symbols, price
reductions will induce an increase of demand. Finally, unit cost and unit volume are
also mutually exclusive. Again, the components may be related: unit costs decrease
with unit volume if there are production economies. Together price, unit cost, and unit
volume are a complete set of components of profit. There are no other components of
profit, at least not at this level of abstraction. Therefore, we conclude that price, unit
cost, and unit volume are a collectively exhaustive set of components of profit.
Alternative decompositions
There are other ways to decompose profit. Instead of unit cost, we can also
decompose costs into variable and fixed costs. An alternative profit formula looks as
follows: Profit = (price – variable unit cost) x volume – fixed costs. We may
decompose unit volume into production capacity and capacity utilization: Volume =
production capacity x capacity utilization. This is a relevant decomposition for
industries, such as manufacturing, airlines, and hotels, where capacity utilization is
critical.
Figure 7.2 The principles of decomposition
Mutual exclusiveness
Mutual exclusiveness of components means that these parts do not overlap
Mutual exclusiveness of components means that these parts do not overlap. You may
ask: Why is mutual exclusiveness relevant? The following example shows the
consequences of overlap. A client, a fashion brand, sells its products via a chain of
physical stores and the company’s web shop. To decompose the client’s market, an
inexperienced consultancy manager distinguishes between customers of physical
stores and customers of the web shop. Next, the manager delegates the
measurement of these customer segments to two different consultants. What fallacy
does the manager make? The manager assumes customers either buy at the
physical stores or at the web shop. In real life, customers may buy at both the stores
and the web shop. There are not two but three segments: customers who buy
exclusively in stores, customers who buy exclusively on the web, and customers who
do both.
Collective exhaustiveness
Collective exhaustiveness of components means that there are no missing parts
Collective exhaustiveness of components means that there are no missing parts. The
set of components must be complete. You may ask: Why is collective exhaustiveness
or completeness relevant? Let us use the previous example about the fashion brand
to show the consequences of incompleteness. The consultancy manager
decomposes the client’s sales into brand stores and web stores. But this
categorization is not collectively exhaustive because the client has a shop-in-theshop formula besides its own brand stores. The client’s shops in department stores
are missing in the manager’s analysis. Consultants do not want to overlook relevant
components. They do not want to get the critical remark from the client at the
presentation of their advice: ‘Why didn’t you consider the shop-in-the-shop?’.
Collective exhaustiveness can be challenging to achieve. How can you know that
components are missing? You do not know what you do not know. Therefore, ask
others for feedback on your categorization.
An easy way to make MECE decompositions is to use existing structures. Structures
can be formulas or frameworks. An example of a formula is the profit equation.
Michael Porter’s competitive strategies, competitive forces framework, and value
chain are three examples of MECE frameworks for strategic management.
Some rules for logical structuring
A logical structure always consists of at least two parts. One part is not a
decomposition.
Avoid structures of more than seven parts.
If you have too many parts, then group some parts together and create
another level for decomposing the groups
If you have too many parts which vary in importance, then consider grouping
all relatively unimportant parts into a residual category, called ‘other parts’
Use a single criterion for decomposition (for example customer size) to avoid
overlap between parts.
If there are multiple decomposition criteria (for example customer size and
customer geography), use multiple decomposition rounds (one decomposition of
customers by size and a subsequent decomposition by geography, or the other
way around).
Draw a table to check the ‘MECE-ness’ of a logical structure with two levels of
decomposition whereby the two decomposition criteria correspond to the two
dimensions of the table.
Draw a Venn diagram of the parts of a logical structure to check for overlap
between the parts.
Do not jump from the key question to the lowest-level sub-questions, or issues,
but show the intermediate levels of decomposition.
Assume an iterative process. It is naive to think that you can structure a complex
question in one go. Structuring is a process of design, review, and refinement.
Do not do this alone in your office but work together with colleagues and other
expert stakeholders because structuring is hard, clients’ problems are complex
and available time is limited.
Let others (preferably people with different perspectives and/or knowledge) think
along about the possible parts of a logical structure. This helps you to create a
collectively exhaustive structure.
Let others review your structure. It is hard to see your own biases and mistakes.
CONSULTANTS’ MODELS FOR PROBLEM-SOLVING
As stated before, consultants formulate clients’ problems as questions. An example
is: How should the client achieve desired profitability within three years? You may
ask: How to answer it? We distinguish between three different problem-solving
process models that consultants may use:
Answer-First Problem-Solving
Structured Problem-Solving
Sequential Analysis
The suitability of models depends on consultants’ prior knowledge of problems and
solutions (see Figure 7.3).
Figure 7.3 A comparison of three problem-solving models
The aim of the book is to prepare students and other interested persons for
consultancy and provide them with consultancy skills. Answer-First and Structured
Problem-Solving are faster than Sequential Analysis, but they require experience.
Sequential Analysis suits inexperienced people and new problems. Experienced
consultants may use it for problems they have not seen before. To cater to the needs
of inexperienced readers, this book focuses on Sequential Analysis. The choice for
this model is not a value judgement but a practical consideration.
The Answer-First Problem-Solving model
The value of experience
For this model, which can be attributed to Bain & Company, consultants need prior
knowledge of possible solutions to clients’ problems. Consultants have solved such
problems before or have seen solutions to these problems. Therefore, consultants
can treat possible solutions as hypotheses. The consultants start projects with
hypothetical answers to the key questions. For example, the client is a multi-product
company with a sales growth problem. The consultants have seen such cases before
and know that part of the client’s product business is in stagnating and declining
markets. The probable answer is that the client should stop with products in
stagnating and declining markets and invest in products in growing markets. Probable
answers or solutions to problems are the subject of Chapter 9. Figure 7.4 is the
author’s interpretation of the model based on public sources.
Figure 7.4 The Answer-First Problem-Solving model
Model steps
1. Consultancy partners define clients’ problems as questions. For example, the
client has a growth problem because some of the client’s products are in
stagnating and declining markets. The key question is: How should the client
realize the desired growth?
2. Consultancy partners develop probable answers. For example: Client should
stop with products in stagnating and declining markets and invest in products in
growing markets.
3. Consultancy partners treat their probable answers as hypotheses. They identify
the hypotheses’ assumptions and develop work plans for testing these premises.
Consultancy managers design analyses, identify data requirements, select data
collection techniques, and assign the work to consultants.
4. Consultants collect and analyse the data. Consultancy managers interpret the
analysis outcomes. In the case that the outcomes do not support the hypotheses’
assumptions, managers reject these answers and develop alternative probable
answers.
5. If the outcomes support the hypotheses’ assumptions, consultancy managers
synthesize the analysis insights.
6. Consultancy managers (with the help of partners) develop the recommended
solution based on the synthesized analysis insights.
The division of roles between partners, managers, and consultants may differ in
practice. In meritocracies, managers and consultants can play a greater role. In
addition, other stakeholders can also play a role. For example, the client’s CEO may
also have a possible solution of his own.
The Structured Problem-Solving model
The Structured Problem-Solving model can be attributed to McKinsey & Company.
This model suits consultants who have no or little knowledge of possible solutions, or
do not want to begin with a focus on specific solutions, but who do know how to
structure the clients’ problems. Consultants can structure, or decompose, these
problems because:
1. These problems lend themselves well to structuring using well-known formulas
(such as the DuPont analysis formula) or frameworks (such as Porter’s
competitive forces framework).
2. The consultants have access to already available structures of these or similar
problems (large consultancies have templates for frequent problems).
3. The consultants are (highly) skilled in problem-structuring.
Figure 7.5 is the author’s interpretation of the model based on public sources.
Figure 7.5 The Structured Problem-Solving model
Model steps
1. Consultancy partners define clients’ problems as questions. For example, the
client’s profitability is below its objective. The key question is: How should the
client realize its desired profitability?
2. Consultancy managers structure the key questions into hierarchies of
increasingly concrete sub-questions. The questions at the lowest level of the
hierarchy are named ‘issues’. There are different ways to decompose questions.
For example, consultants can break down profit into revenue and costs. Then the
sub-questions are: How should the client increase revenues? How should the
client decrease costs? But as Figure 7.6 illustrates, there are other
decompositions as well.
3. Consultancy managers prioritize some issues because not all sub-questions are
equally important. We will discuss prioritization later. For efficiency reasons,
consultants focus on the most important sub-questions. For the prioritized
issues, managers develop probable answers or hypotheses. Like Answer-First,
Structured Problem-Solving works with hypotheses but unlike Answer-First the
hypotheses are not about key questions but about issues or sub-questions.
4. Managers design analyses and plan the work for testing the hypotheses.
5. Consultants do the data collection and analyses. Managers interpret the analysis
outcomes. In the case that the analysis outcomes do not support the
hypotheses, managers must reject these insights and develop (with the help of
partners) alternative hypotheses.
6. If the insights support the hypotheses, managers combine or synthesize these
partial insights into solutions to the problems. Just like the issues are parts of key
questions, the insights are parts of solutions.
7. Consultancy managers (with the help of partners) develop the recommended
solution.
Again, the division of roles between partners, managers, and consultants may differ
in practice.
Problem decomposition
Consultants decompose key questions into sub-questions. Figure 7.6 visualizes a
decomposition for client A. According to the Minto Pyramid Principle, sub-questions
should be mutually exclusive and collectively exhaustive, respectively, with no overlap
and no missing questions. Please note that Figure 7.6 is just one approach to
decomposition. There are alternative approaches as well. The same applies to all
examples of decomposition in this and subsequent chapters. We give a possible
disaggregation but emphasize that this is one of the possibilities. There are
alternative ways of breaking down problems. According to the saying that several
roads lead to Rome, there can be several workable decomposition forms. But
breakdowns must always be well structured. This means that the sub-questions must
be mutually exclusive and collectively exhaustive or MECE.
Figure 7.6 A decomposition of a key question into sub-questions
An issue tree
Figures 7.2 and 7.6 show a one-off decomposition of a whole into parts. However, we
can decompose further. We can decompose the components into their composing
parts. This way, we can continue to break down a whole into smaller and smaller
parts. We can cut the pizza’s large slices into smaller pieces until we have an amount
small enough to eat. Consultants decompose key questions into hierarchies of
increasingly concrete sub-questions (see Figure 7.7). Because of the branches, such
hierarchical structures are also called trees. More precisely, they are named ‘issue
trees’ after the lowest-level questions or ‘issues’. The key question in Figure 7.7 is
decomposed into three branches.
Figure 7.7 A decomposition of a key question into an issue tree
The number of branches of a tree
The figures in this chapter often show decompositions in three components. But the
number of parts can vary. The minimum is two because one piece does not make a
tree. There is no strict limit to the number of branches. But try to avoid more than
seven, otherwise trees become too complex. They quickly become too much to
comprehend. If you need more than seven branches, then better to use extra levels.
For example, by decomposing a key question two times in five lower-level questions,
you end up with 25 components (5 x 5).
The number of levels of a tree
Figure 7.7 displays two levels of sub-questions. We have broken down the key
question twice. The number of question decompositions or tree levels has no limit. It
may be more than two in practice. Consultants decompose questions until they arrive
at sub-questions that can be measured directly: the so-called ‘issues’. Typically,
issues are closed questions: they can be answered with yes or no. Consultants can
investigate these questions without need for further breakdowns because issues do
not contain abstract concepts but only directly measurable variables. The facts on
which issues are based can be gathered. Therefore, these questions lend themselves
well to factual analysis. Figure 7.8 shows a decomposition of one of the subquestions of Figure 7.6 into issues. There is less demand for A’s product because the
total demand for that product category is smaller (the left branch) or A may have lost
share (the right branch). An increase of price sensitivity may explain the decline of
category demand and the loss of share (if A charges a relatively high price).
Figure 7.8 A decomposition of a sub-question
The Sequential Analysis Problem-Solving model
In some cases, consultants have no prior knowledge of clients’ problems. These
problems are unfamiliar to the consultants. Because the consultants do not know
these problems, they find it hard to decompose key questions into issue trees. Then
consultants need some help to create an issue tree. Sequential Analysis may provide
that kind of help. The Sequential Analysis Problem-Solving model can also be
attributed to McKinsey & Company (Holland, 1972, cited in Minto, 2003). Figure 7.9 is
the author’s interpretation based on public sources.
Because the consultants do not know these problems, they find it hard to decompose
key questions into issue trees
Sequential Analysis is a model that uses a sequence of questions to solve problems,
which is reminiscent of the Socratic approach. By answering the first three questions
one after another, consultants can understand problems. Based on their
understanding, consultants can develop solutions to these problems. We discuss the
first three questions in the next section. The latter two are subjects of Chapter 9.
Figure 7.9 The Sequential Analysis Problem-Solving model
SEQUENTIAL ANALYSIS PROBLEM-SOLVING
Is there a problem?
The first question of Sequential Analysis is: Is there a problem? Or: Does the client
have a problem? The previous chapter outlined the identification of a gap between
client’s realized performance and the objective. We observed that there must be
some event or development that has led to this gap (see Figure 7.10). That event of
action harms the realized result.
To illustrate Sequential Analysis Problem-Solving, we take a fictitious company
named X. It is a medical technology company that produces one product, a ‘hightech’ machine for medical treatments. X is the technology leader of its industry and it
has the most advanced product on the market. For many years, X has achieved high
growth in sales and profit. But turnover growth has stagnated in recent years, and
profitability has also come under pressure. X’s chief executive officer (CEO) has hired
a management consultancy firm to get X back on its growth track. The consultancy
uses Sequential Analysis to develop an understanding of X’s problem. X has a
problem because its realized profit is below the objective, which implies a profit gap.
Figure 7.10 A problem leads to a gap between the objective and the realized
performance
A process for defining problems
Figure 7.11 outlines the various steps for defining a problem. This is the author’s
interpretation based on public sources.
Figure 7.11 Process steps for defining a problem
1. Consultants define the client’s performance objective. They ask the client about
the company’s overarching objective, which typically is profit.
2. Consultants assess the client’s realized performance. This is a matter of
collecting data about the client’s past results.
3. Consultants define the client’s performance gap as the difference between the
objective and the realized performance (see Figure 7.10).
4. Consultants decompose the gap into sub-gaps. In Figure 7.12, consultants
decompose a profit gap into a revenue gap and a cost gap. Like the Structured
Problem-Solving model, consultants breakdown the whole into parts.
5. Consultants compare the importance of the sub-gaps and prioritize the most
important one(s). The revenue gap and the cost gap do not have to be equally
important to the profit gap. Like the Structured Problem-Solving model,
consultants prioritize the most important part(s).
Decomposing gaps into sub-gaps
Consultants decompose gaps into sub-gaps. We illustrate the process with the
fictitious medical technology company X. As the company has only one product, the
consultants can decompose X’s profit gap into a revenue gap and a cost gap. Next,
they break down the revenue gap into a price gap and a volume gap, whereby
volume refers to the number of products sold. The price gap is the price objective
minus the realized price. Similarly, the volume gap is the sales volume objective
minus the realized volume. Finally, the consultants decompose the cost gap. There
are various ways to break down costs:
variable and fixed costs
direct and indirect costs
activity-based costs (such as marketing costs)
cost items of a P&L statement.
Figure 7.12 presents a MECE decomposition of X’s profit gap into a revenue gap and
a cost gap. To keep the figure clear, we split the costs into only two categories: costs
of sales and other costs. If you use the adjective ‘other’, you ensure that the set is
collectively exhaustive! (-:
Figure 7.12 A decomposition of a profit gap into sub-gaps: A revenue gap and a cost
gap
Some rules for structuring performance gaps
Consider financial formulas to structure performance indicators into their
composing factors.
Try to choose performance factors that are specific for a client’s organization and
sector.
For example, decompose profit of a capital-intensive business into
contribution margin and fixed costs.
For example, decompose revenue of a restaurant into the number of tables
and the revenue per table.
Set priorities for performance factors and select the priority factor(s), but make
sure that the selected factor gaps realize a sufficient coverage of the overarching
performance gap (for example, client wants the prioritized factor gaps to cover at
least 80 per cent of the profit gap).
In case of clients’ profit gaps choose earnings before interests and tax (EBIT) to
focus on business problems and exclude any fiscal and financial influence on
performance.
Do not limit yourself to the financial numbers of a single reporting period but
relate your research to a number of periods that is sufficiently large to identify
any trends. Consultants focus on structural performance gaps and not on one-off
or temporary gaps.
Engage clients’ business controllers or financial people to increase efficiency
(delegate (parts of) the gap analysis work to them) and to ensure that the figures
of gap analyses match the figures of clients’ financial reports. Ensure that the
clients at the presentation of the advice recognize the financial numbers in the
supporting analyses. The clients’ financial people should confirm the numbers
and the analyses. But if consultants think that the clients’ financial reporting is
not good, then they will not delegate work to the clients’ financial employees or
they will check their work very closely.
Prioritizing sub-gaps
The client’s realized profit can be below their profit objective because the realized
revenue falls short of the revenue objective. Then the revenue gap causes the profit
gap. However, the realized profit can also be below the objective because the
realized costs exceed the cost objective or budgeted costs. In the latter case, the cost
gap causes the profit gap. But it can also be a combination of a revenue gap and a
cost gap that generates a profit gap. Consultants like to compare the individual
contributions of a revenue gap and a cost gap to a profit gap. It is essential to know
what the most prominent explanation of a profit gap is and prioritize that sub-gap. Is a
profit gap entirely or mainly a revenue problem, or is it entirely or particularly a cost
problem? Different types of problems may require different types of solutions.
Therefore, revenue problems and cost problems require distinct studies.
Is a profit gap entirely or mainly a revenue problem, or is it entirely or particularly a
cost problem?
Measuring sub-gaps’ contributions to the gap
You may ask: How to measure the contribution of a revenue gap to a profit gap?
Consultants isolate a revenue gap’s impact on profit by assuming there is no cost
gap. Similarly, consultants separate a cost gap’s effect by asserting there is no
revenue gap.
Consultants compare the profit gap contributions of revenue gaps and cost gaps.
That comparison allows consultants to prioritize the most significant contribution. In
Chapter 8, we will discuss the analysis. Let’s already assume that the revenue gap
has the most significant impact on the profit gap. By comparing these contributions,
consultants can prioritize what matters most to their client’s profit gap. We
acknowledge that price, sales volume, and costs are not independent but influence
each other. Because of customer price sensitivity, price affects sales volume. If there
are production economies, then sales volume impacts costs. Consultants consider
these relationships in the third step of Sequential Analysis, when they answer the
question: Why does the problem exist?
Segmenting gaps of multi-business corporations
A decomposition of the profit gap into a revenue gap and a cost gap is only allowed if
a client has only one profit and loss (P&L) statement. But the client may be a multibusiness corporation with a separate P&L for each business unit. Decomposing a
multi-business corporation’s profit into corporate revenue and corporate costs would
not make sense. Both corporate revenue and costs are the sum of business units’
results. In such a case, consultants first decompose the corporate profit by business
unit. Second, they decompose business unit profit into revenue and costs. If the client
or a business unit of the client sells multiple products, consultants should decompose
the profit by product.
Where is the problem?
The second question of Sequential Analysis is: Where is the problem? Consultants
segment the prioritized performance sub-gap. Like decomposing gaps, the purpose
of segmentation is to determine priorities. Are there specific segments that contribute
disproportionately to the prioritized sub-gap? Consultants search for a segmentation
that reveals the most uneven distribution of that gap.
You may wonder: How to segment a gap? Let’s assume that company X’s revenue
gap has the most significant impact on its profit gap. The volume gap explains most
of the revenue gap. Consultants will prioritize the volume gap as it is the single most
significant contributor to the profit gap and add following contributors (such as the
price gap) until they can explain most of the profit gap. They prioritize the smallest
selection of sub-gaps that can cover the desired part of the profit gap.
Uneven distribution
To give the broadest possible picture of segmentation techniques, we provide
examples of both revenue segmentation and cost segmentation. Let us first look at
revenue, and more specifically, sales volume. There are several ways to segment
sales volume, such as product variants, customers, distribution channels (such as,
physical or online, direct or indirect distribution), or geographies (such as cities,
provinces, countries). Consultants may segment in a fine-grained way, such as by
store types, sales offices, sales directors, and account managers. You may ask: What
is the best way to segment volume gaps?
The 80/20 rule
Consultants want to determine whether there is an uneven distribution of a volume
gap across the segments. For example, is 20 per cent of customers making up 80 per
cent of a volume gap? This is the so-called ‘80/20 rule’ or a Pareto analysis.
Consultants look for segmentations that reveal significant volume differences
between segments. Again, consultants prioritize the most significant contributors to
the gap. Consultants focus on the segments that matter most.
A process for segmenting problems
Figure 7.13 outlines various steps for segmenting problems. Again, the process is the
author’s interpretation based on public sources.
Figure 7.13 Process steps for segmenting a problem
1. Consultants identify possible segmentation criteria. They collect various possible
criteria for segmenting the prioritized sub-gap by using their own experience and
asking knowledgeable stakeholders and other experts. For example, if the subgap is about product sales volume then possible segmentation criteria are
customer type, distribution channel type, or country.
2. Consultants evaluate these criteria and prioritize the ones that probably will lead
to the most uneven distribution of the sub-gap across segments. Figure 7.14
provides an example of the segmentation of a volume gap by customer types.
3. Consultants collect the data about the segments. These data are often in the
hands of clients. Consultants then formulate data requests to their clients. If the
data have not been collected before, then consultants need to do field research.
4. Consultants conduct the segmentation and measure the performance sub-gap
per segment. For each segment, they compare the realized performance and the
objective. For example, they compare the volume gaps of the customer
segments (see Figure 7.14).
5. Consultants analyse the sub-gap’s distribution across the segments. They
compare the gaps of the various segments. If there are no or small differences
between these gaps, then the consultants consider an alternative segmentation
criterion and iterate the segmentation process.
6. Consultants compare the segmentations that lead to uneven distributions. They
select the segmentation with the most uneven distribution. In this distribution, the
consultants prioritize the segment with the largest gap.
Figure 7.14 A segmentation of a volume gap
Example: Segmentation of a sales volume gap
Figure 7.14 illustrates the segmentation of X. The consultants segment X’s sales
volume by customer segments. X sells its medical machines only to hospitals:
academic hospitals and other hospitals. Please note that the segmentation is MECE.
They are mutually exclusive because hospitals belong either to the academic
category or the other category. Together these two are collectively exhaustive
because X sells to only these two customer segments. Consultants compare the
segments’ gaps and prioritize the biggest one or the selection of segments that cover
the desired part of the gap. Chapter 8 will discuss the analysis. Figure 7.14 shows
that the segment of other hospitals has the largest gap.
Segmentation of the cost gap
Now let us consider X’s gap of ‘costs of sales per product’. You may ask: How to
segment this gap? Costs per product or unit costs refer to the supply of products.
Therefore, consultants consider the client’s supply-side. If the client is a retailer,
consultants may segment the costs of the sales by suppliers. In the case of X, the
consultants segment the unit cost gap by the company’s three production plants: Q,
Y, and Z. The cost per unit allows consultants to compare plants of different sizes.
Chapter 8 will discuss the analysis. Figure 7.15 visualizes this segmentation. Please
note that the segmentation is MECE. The components of the logical structure are
three different plants which means that they are mutually exclusive. X has only three
plants. Therefore, these three are collectively exhaustive. Figure 7.15 shows that
plant Q has the most significant gap in the unit cost of sales. The gap between the
realized unit cost and the objective or budgeted unit cost is highest for plant Q.
Figure 7.15 A segmentation of the gap of unit costs of sales
Some rules for segmenting of performance gaps
Search for an uneven distribution of gaps across segments like the 80/20 rule.
Do not do this alone but always include knowledgeable others in:
the identification and prioritization of possible segmentation criteria
the review of your proposed segmentation
Be aware of pitfalls in engaging stakeholders in the identification of possible
segmentation criteria:
Some stakeholders give wrong criteria because they lack knowledge.
Some misaligned stakeholders give wrong criteria on purpose.
Critically ask stakeholders why the proposed criteria would be relevant, that is
reveal an uneven distribution of the gap.
Set priorities and select the priority segment(s), but make sure that the selection
covers the desired part of the performance gap.
Why does the problem exist?
Efficiency
The third question of Sequential Analysis is: Why does the problem exist? You might
ask: Why do consultants not start with the why question? Ultimately, it is all about the
why question. You got that right. But answering the why question is also the most
laborious and time-consuming. Consultants do not want to waste time and effort
investigating performance factors and segments that are not or less important to
clients’ gaps. The factors of profit are revenue and costs. If the cost overruns explain
only a tiny bit of the profit gap, consultants do not want to spend a lot of time and
effort on explaining why the costs are a bit higher. Similarly, if the volume gap of
customer segment T explains only a tiny bit of the client’s overall volume gap, then it
makes no sense to investigate why segment T customers are buying a bit less.
Consultants do not want to waste time and effort investigating performance factors
and segments that are not or less important to clients’ gaps
By answering the ‘what’ and ‘where’ questions of Sequential Analysis, consultants
prioritize the most critical factors and segments of their clients’ problems. In this way,
consultants make sure that they explain the most vital factors and segments. It is like
drilling for oil (we admit it that it is not an example of sustainability, but it is clear).
Before oil companies start drilling for oil in the ground, they first do soil research to
increase the success rate of drilling. Before consultants test a why-hypothesis, they
want to know if they are focusing on the right factors and segments.
A process for explaining problems
Figure 7.16 outlines the various steps for explaining problems. Again, the process is
the author’s interpretation based on public sources.
Figure 7.16 Process steps for explaining a problem
1. Consultants define the gap of the prioritized segment, which is the answer to the
second question of Sequential Analysis: Where is the problem?
2. Consultants develop possible answers to the question: Why does that gap exist?
Consultants can use three alternative routes for developing possible
explanations.
They can identify cases that are analogues to the client’s situation.
Consultants may use their own experience (the consultancy firm’s
knowledge management system with information about all previous client
projects) or conduct benchmark studies to identify analogical cases.
Consultants can ask knowledgeable stakeholders and other experts for
possible explanations. Stakeholders who are close to the problem may have
observations and ideas that may explain that problem.
Consultants may also identify relevant frameworks. Many problems have
already been investigated and translated into frameworks. These theoretical
tools can help consultants to distil explanations.
3. Consultants evaluate and prioritize the possible explanations. Not all
explanations are equally important and likely. Only the prioritized explanations
become hypotheses. These hypotheses about problems resemble the Structured
Problem-Solving model’s hypotheses about issues. The problem hypotheses are
unlike the probable answers of the Answer-First model, which are hypotheses
about solutions instead of problem explanations.
4. Consultants plan the work for testing their hypotheses.
5. Consultants conduct the analyses. If the outcome does not support the
hypothesis, then the consultants repeat the process of hypothesis development
and testing. If the outcome supports the hypothesis, consultants have a verified
explanation. But if one explanation is not enough to cover the desired part of the
gap, consultants search for additional causes which implies more hypothesis
development and testing.
6. If the combined verified problem causes explain the desired part of the gap,
consultants synthesize or combine the analyses insights.
7. Consultants develop a complete (combined) explanation of the gap.
Developing possible explanation with analogical cases
Consultants may look for cases that are analogical to their clients’ problems. Are
there other companies that had the same or similar problems? This is where the
experience of consultancy firms is so valuable. Consultants may know comparable
companies and problems. But in case consultants think the other cases are similar,
they still need to be careful not to compare apples and oranges. Consultants must
carefully examine whether the other problem is close to the focal problem. If
consultants have found the same or a similar situation, they ask: What were the
causes of that other problem?
Developing a possible explanation with insights from stakeholders
Alternatively, consultants may approach stakeholders inside or outside the client
company who are close to the problem. Consultants may ask them for their
explanation for the prioritized segment’s performance gap. What do these
stakeholders think caused this problem? But consultants should be critical about their
answers, especially if consultants suspect the stakeholders are misaligned and have
hidden agendas. Therefore, consultants keep asking questions to the stakeholder:
Why is this an explanation? Consultants ask them to further substantiate their
explanation of the problem with arguments and evidence.
Developing a possible explanation with frameworks
Consultants may also use frameworks or models to explain their clients’ problems.
Besides the consultancy firm’s proprietary frameworks, consultants may select
frameworks from the literature that apply to their clients’ problems (see some
examples in Figure 7.17). For example, Porter’s competitive forces framework may
help explain why a client’s price gap exists. The three approaches (analogies,
stakeholders, and frameworks) do not exclude each other. Consultants may combine
the three approaches and continue until they find the root causes of their clients’
problems. The consultants drill down to these root causes by continuously asking
themselves: Why is this a problem?
Figure 7.17 Some popular management frameworks
It is important to point out here that these approaches generate possible explanations
of problems. Consultants formulate these explanations in question form. Will this
cause explain the client’s problem? The next chapter describes the step from
questions to hypotheses. That chapter also discusses how consultants test
hypotheses. Only if the test supports the hypothesis does the possible explanation
become a verified explanation.
Example: Possible explanations for a sales volume gap
We use the fictitious company X to illustrate the possible explanation of a problem.
One of the consultants’ questions is: Why does the volume gap of the customer
segment of other hospitals exist? Figure 7.18 shows three levels of possible causes
as the consultants have asked three times: Why is this a problem? Please note that
each decomposition leads to a MECE set of possible explanations. The first-level
decomposition into the size of the segment and X’s share of the segment is MECE. It
is based on a formula: X’s volume = size of the segment x X’s share of the segment.
The first level decomposition is based on an ‘and/or’ logic of the explanations (see
the text bubble in Figure 7.18). The problem is either based on both explanations
(size and share) or on one explanation (size or share). One explanation may be
enough.
Please note that the second level consists of two decompositions. The consultants
assess the ‘MECE-ness’ of these two decompositions separately and individually.
The decomposition of the segment-explanation is MECE (the tree’s left branch in
Figure 7.18). The breakdown of the share-explanation is also MECE (the right
branch). For each of the two second-level explanations, the consultants develop a
MECE set of third-level causes. For the clarity of Figure 7.18, we will limit ourselves
to just one reason at the second level, namely the decline of X’s competitiveness. We
use ‘and/or’ logics which means both combinations of explanations (‘and’) or a single
explanation (‘or’) may suffice to explain the higher-level subject.
Figure 7.18 Possible explanations of a segment’s volume gap
Action point
Do not develop an explanation tree in a top-down manner. First, collect concrete
explanations, and then, structure them in a tree.
Possible explanations for a cost gap
Another question of the X-example is: Why does plant Q have a gap of unit costs of
sales? Figure 7.19 shows two levels of explanations with four possible reasons at the
first level. Each cause could be decomposed into lower-level causes. For the figure’s
comprehensibility, we break down only one of the four first-level explanations. We use
‘and/or’-logic.
Figure 7.19 Possible explanations of plant Q’s gap of unit costs of sales
Engaging stakeholders in the development of possible explanations
Stakeholders may have valuable information about causes of clients’ problems
Stakeholders may have valuable information about causes of clients’ problems. This
is a good reason for engaging these knowledgeable stakeholders in the problem
diagnosis. But it is not only about getting their know-how but also about getting their
support. By connecting to these stakeholders, they feel heard and involved. It is
important to take these people seriously and respect them. In that way they will more
likely accept the solution and support the implementation. This is the reason why
consultants include stakeholders who may have insights and other stakeholders
whose support consultants may need for the solution’s approval, acceptance, and
implementation. These stakeholders must feel involved in the problem-solving
process before consultants present their solutions and invite them to help implement
these solutions.
Some rules for structuring possible explanations of performance gaps
Do not do this alone but always include others in:
the development of possible explanations
the review of your proposed structure of possible explanations
the prioritization of possible explanations.
Engage relevant stakeholders in the development and prioritization of possible
explanations criteria but be aware of pitfalls:
Some stakeholders give wrong explanations because they lack knowledge.
Some misaligned stakeholders give wrong explanations on purpose.
Critically ask stakeholders why the proposed explanations would be relevant:
What are the logical arguments? Also ask for any evidence and sources for
collecting the relevant data.
Ask stakeholders for the reasons behind the reasons to uncover the root causes
of problems. Drill down for the root causes.
Develop a logical structure of possible explanations in two steps:
Develop the possible explanations without worrying about a structure
(exception, you may use a framework as a checklist during interviewing with
relevant stakeholders)
Create a logical structure of these explanations.
If you fail to avoid all overlaps between possible explanations, do not despair.
Mutual exclusion of parts in a logical structure is a means instead of an end. The
purpose is identifying the most important possible explanations. Therefore, do
not endlessly redraw structures to create the perfect (MECE) structure of
explanations. The point is that the structure works for you rather than being
technically perfect.
The logical structure of possible explanations need not necessarily be
collectively exhaustive. It is about the explanatory power of the possible
explanations. Explanations that are purely theoretical but highly unlikely in the
case of the client’s problem deserve no place in the structure.
Set priorities and select the priority explanation(s), but make sure that the
selection of possible explanations covers the desired part of the performance
gap.
Sequential Analysis of opportunities
The previous chapter outlined that clients face opportunities when events or
developments can cause the clients’ performance to exceed their objectives. Please
note the use of the verb ‘can’. It can happen, but it has not happened yet. The
performance exceeds the aim when clients seize these opportunities. Opportunities
only suggest that objectives can be increased. They lead to gaps between old and
new objectives. Figure 7.20 compares problems and opportunities.
Figure 7.20 A problem gap versus an opportunity gap
Action point
You may combine the three approaches: analogical cases, shareholders’ insights,
and frameworks. Cases and shareholders are excellent sources of the most concrete
explanations.
Approaches for causes
Consultants may also use Sequential Analysis for opportunity diagnoses, but they
cannot use the same sequence as for problems. Because consultants do not know
the new objectives, they cannot begin with gaps between old and new objectives.
First, consultants need to understand the opportunity causes. They ask themselves:
Why does the opportunity exist? Like problem causes, consultants distinguish
between three approaches to identify possible causes of opportunities:
Analogical cases
Stakeholders
Frameworks
Consultants may use cases of analogical opportunities. Stakeholders who are close
to the opportunity may also have knowledge about possible causes. Furthermore,
frameworks may point to possible causes. Consultants not only ask why opportunities
exist but also investigate why opportunities may not exist. They do not look only for
confirmation of opportunities but also for arguments that debunk opportunities if they
are false. For debunking false opportunities, consultants may engage stakeholders
who are critical of the opportunities or even outspokenly negative about these
chances. Perhaps opponents of opportunities are right. Therefore, it is better to hear
the critical voices at the start of the project than at the presentation of the advice.
Action point
Do a pre-mortem analysis of the opportunity. Imagine that a couple of years have
passed, and the seizure of the opportunity has failed. What could explain this failure?
Example
Let us illustrate the Sequential Analysis of an opportunity with an example about a
fictitious business school named ‘B’. It is a prestigious private school that focuses on
short non-degree programmes for business executives. Assume it is 2017, and B
faces the rise of online education. The board of directors wonders whether online
education is an opportunity for B. The first question is: Why does an opportunity for
online education exist? Figure 7.21 decomposes the why question into subquestions. Each sub-question refers to a possible explanation of the opportunity. We
would like to emphasize that these are possible explanations. The next chapter
indicates how consultants translate the sub-questions about possible causes into
hypotheses. Only support of these hypotheses by analyses leads to proof of these
causes.
Why does the opportunity exist?
Consultants distinguish between a market opportunity and a business opportunity.
Whereas the former is an opportunity for firms in general, the latter is a specific
option for the client. The business opportunity means that a market opportunity
exists, and the client can seize that opportunity. At the first level of Figure 7.21 we
use an ‘and’ logic for the explanations. Both explanations must be true. At the lower
levels, we use ‘and/or’ logic: only one explanation is enough.
In Figure 7.21, we decompose into lower levels of explanations by asking the
question: Why? You probably recognize the use of Porter’s Competitive Forces
framework for the decomposition of a market opportunity. To keep Figure 7.21 clear,
we decompose only one of the five explanations, an increase in customer demand.
The question is: Why would customer demand increase? We distinguish between
three possible answers:
Online education allows schools to reach more customers (students). Online
education is not affected by geographic distances.
Online education reduces the perceived value or willingness to pay (WTP
hereafter) of customers.
Online education lowers the costs for customers.
Again, you may ask: Why is that so? For the sake of clarity of the figure, we will not
consider any further decomposition.
Figure 7.21 Possible explanations for B’s online education opportunity
Where is the opportunity?
The second question is: Where does the opportunity exist? Consultants look for
relevant segmentation criteria that may reveal an uneven (like 80/20) distribution of
the opportunity across segments. As online education increases the geographic
reach of schools, the geography of students seems a relevant segmentation criterion
(see Figure 7.22). One of the possible reasons why customers would prefer online
education is the convenience of staying at home or at the office. For working people
or practitioners, the opportunity costs of living on the university campus are much
higher than for pre-experience students, even for a short period. Here we would like
to note that these are possible segments. The next chapter outlines how consultants
develop and test hypotheses about possible segments. Only supported hypotheses
lead to proof of these segments.
Figure 7.22 A segmentation of B’s online education opportunity
What is the size of the opportunity?
Consultants estimate the opportunity’s size after hypotheses about possible causes
(Why?) and possible segments (Where?) have been tested and supported. The third
question is: What is the size of the opportunity? The opportunity size is the gap
between the old and the new, higher, performance objective. Consultants ask
themselves: By how much can the client raise its objective because of the
opportunity? The new, higher, objective and therefore the opportunity size is an
expectation instead of a fact. Only after the client has seized the opportunity can it be
measured by how much that company has raised its performance due to the
opportunity. Until that time, the opportunity size remains an expectation.
Let us return to our example about private business school B. Profit is B’s main
performance objective. Therefore, we size the opportunity in profit terms (see Figure
7.23). Please look closely at the direction of the arrow on the left. This arrow is now
pointing up. This figure is not a decomposition where we move from the whole to the
components. This is a composition. We start at the bottom with the elements and are
going to merge them into larger entities. We continue in this way until we reach the
top.
Figure 7.23 An estimation of B’s online education opportunity gap
CONCLUSION
We simply cannot swallow a pizza at once, and therefore, slice it into eatable parts.
Similarly, consultants cannot analyse a complex problem at a high level of
abstraction. The consultants decompose it into analysable concrete components.
People simply do not have the thinking ability to analyse a complex problem all at
once. Most business problems are simply too complicated for this. That is why
consultants first explore the parts of the problem. Consultants decompose the
problem into components. The decomposition is a delicate matter. Consultants must
ensure that the parts do not overlap or that pieces are missing. Of course, everything
can be related to everything. But that should not discourage consultants from
understanding the components first. Of course, the consultants subsequently
consider any relationships between these parts. But only one thing at a time. We
simply must consider the limitations of our thinking ability.
Running Case
KEYBOARD
Kate decides to use Sequential Analysis for Keyboard’s problem. The first question to
answer is: Is there a problem with Keyboard? Kate has formulated the following
question: How should Keyboard respond to non-scale and scale issues to achieve a
profitability margin of 10 per cent in two years? The realized profitability margin is 5
per cent. Therefore, the gap is 5 percentage points. Should Kate decompose the
profitability into revenue and costs? Keyboard has five product categories. Although it
does not produce the products itself, Keyboard has the characteristics of a multibusiness firm.
WHERE IS THE PROBLEM?
The second question of Sequential Analysis is: Where is the problem? Should Kate
segment the profitability gap by product category? This is the proposed approach for
multi-business firms with separate P&Ls for their businesses. The segmentation of
Keyboard’s profitability gap by product category can show profitability differences per
product. You can then perform analyses and make recommendations at the product
level. This approach would be acceptable were it not for the fact that we now ignore
the relationships between the products. You may ask: What are the relationships
between the products? Many Keyboard products share the same customer. The
various products do not have different customers. Keyboard’s customers put multiple
types of products in their digital shopping cart. Product-level optimization ignores the
relationships between products because of customers’ purchasing behaviour.
CUSTOMER SEGMENTATION
The ultimate source of profit is not the product but the customer. The product is only a
means to an end: enticing the customer to pay the company. Kate knows from
experience that not all customers are equally profitable. Profitability per customer can
vary widely. Therefore, Kate should segment Keyboard’s profitability gap by
customers. Before the Internet, you used to segment customers based on
characteristics such as age, income, place of residence. The great thing about an
online retailer is that all customer data is available. Every purchase transaction is
known. Therefore, the consultants can calculate each customer’s profit, which is the
subject of Chapter 8. The result of this analysis is that there are three customer
segments. Figure 7.24 presents the segmentation of the profit gap. There is a
profitable segment A. There is a segment B where Keyboard does not make money
but also does not lose. Finally, there is a segment C where Keyboard is losing money.
The comparison of the segments shows that the profitability problem is greatest in
segment C. Segment C is therefore given the highest priority. However, segment B is
currently not contributing to profit. That is why this segment also deserves attention. It
is the second priority for the consultants. Given the limited space in the book, we limit
the analysis to the segment with the highest priority: C.
Figure 7.24 A segmentation of an operating profit gap
WHY DOES THE PROBLEM EXIST?
The third question of Sequential Analysis is: Why does the problem exist? The
segmentation analysis reveals that customer segment C causes the profitability gap.
The consultants need to explain the difficulty of segment C. Their question is: Why
does customer segment C have an operating profit gap? The consultants decompose
that question into a hierarchy of sub-questions. For the first breakdown, they use a
formula. Operating profit = gross margin – other costs. For the decomposition of the
gross margin, they take another recipe: Gross margin = number of products x margin
per product. The consultants break down the other costs using a cost categorization.
Figure 7.25 shows only two levels of decomposition. The explanations at the second
level are still too abstract for analysis. The consultants will further decompose the
clarification by asking: Why? However, we do not show that in Figure 7.25 but in the
following ones.
Figure 7.25 A decomposition of customer segment C’s profit gap
Figure 7.26 is a decomposition of one of the second level’s possible explanations:
Why does a C- customer buy too few products? As an example, we will decompose
one of the possible explanations.
Figure 7.26 Possible answers to the question: Why does a C-customer buy too few
products?
As another example, we decompose the question: Why is the average gross profit
margin per product bought by C-customers too low? Figure 7.27 shows the possible
explanations. There must be low-margin products for a low average margin per
customer, and the customer buys relatively many of them. We descend to more base
and more concrete levels of explanations by continuously asking why.
Figure 7.27 Possible answers to the question: Why is the average gross profit margin
per product bought by C-customers too low? [Pay attention to the ‘and’ logic at first
level: both conditions must apply]
As a final example, we decompose the question: Why are the costs of returns for
customer C too high? The first decomposition is about customer’s reasons for
returning products. There are two options. Either the customer has valid reasons to
return or wrong reasons, respectively, legitimate and false returns. We develop the
second level of possible explanations by asking why (see Figure 7.28). For clarity and
comprehensibility of the figure, we provide only two examples of a third-level
decomposition.
Figure 7.28 Possible answers to the question: Why are the costs of returns for
customer C too high?
SUMMARY
This chapter outlines how management consultants decompose a client’s problem.
They break down the issue to identify its micro-foundations. When decomposing,
consultants follow the Minto Pyramid Principle. The components of a problem must
be mutually exclusive and collectively exhaustive (acronym: MECE).
We distinguish between three different approaches to problem-solving. The
appropriateness of a procedure depends on the consultants’ prior knowledge and
experience of the problem and its possible solution. If the consultants already have
an understanding of the problem and solution, they can use the Answer First
problem-solving model. They start the project with a possible answer to the critical
question. This is a hypothesis about a possible solution.
Sometimes the consultants have no prior knowledge about a possible solution. Still,
they do have knowledge about the problem. Then they can apply the Structured
Problem-Solving model and develop a so-called ‘issue tree’. The consultants
decompose the key question into a hierarchy of increasingly concrete sub-questions.
The most straightforward questions at the bottom of the order are called the ‘issues’.
There may also be situations where the consultants do not even know or have
experienced the problem. If the problem is not familiar to the consultants, they can
resort to the Sequential Analysis Problem-Solving model. This is a sequence of
questions. This chapter discusses the first three questions (see Figure 7.29).
1. The first question is: Is there a problem? Consultants frame the problem in terms
of a performance gap and formulate it as a critical question.
2. The second question to answer is: Where is the problem? Consultants segment
the gap to check for an uneven distribution of the gap across segments, such as
the 80/20 rule.
3. Then, the consultants answer the third question: Why does the problem exist?
Consultants decompose that question into a hierarchy of possible explanations.
The possible causes are candidates for hypotheses (Chapter 8).
Figure 7.29 Possible answers to the questions of a Sequential Analysis of a strategic
problem
Clients not only hire consultants to solve problems but also to seize opportunities.
The analysis of a possibility follows the opposite sequence. Consultants begin with
the why question. Why does the opportunity exist? They develop possible
explanations of the option. Next, consultants answer the where question. Where is
the opportunity? The possible causes and segments of the opportunity serve as
material for hypotheses about the opportunity. Supported hypotheses allow
consultants to answer the third question: What is the opportunity’s size?
REFERENCES
Baaij, M. G. (2011). The Consultancy Method: From Problem to Solution. The Hague,
NL: Academic Service (Dutch language).
Coleman, J. S. (1994). Foundations of Social Theory. Cambridge, MA: Harvard
University Press.
Holland, R. B. (1972). Sequential Analysis. London: McKinsey & Company. Cited in
Minto (2003).
Minto, B. (2003). The Minto Pyramid Principle: Logic in Writing, Thinking and Problem
Solving. London: Minto International.
Minto interview. Retrieved from www.mckinsey.com/alumni/news-and-insights/globalnews/alumni-news/barbara-minto-mece-i-invented-it-so-i-get-to-say-how-topronounce-it (accessed 30 November 2020).
Porter, M. E. (1980). Competitive Strategy. Techniques for Analyzing Industries and
Competitors. New York: Free Press.
Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior
Performance. New York: Free Press.
QUESTIONS
1. When you want to decompose the client’s problem, one of your client’s
employees points out that everything is connected to everything. Therefore, you
need to take a holistic approach. How do you respond to this person?
2. In collecting possible explanations of your client’s problem, a client’s employee
tells you in confidence that the client’s unethical labour practices are the problem
cause. How would you deal with this information?
3. You try to identify the possible causes of your client’s problem by asking the
stakeholders. You end up in a political fight where various stakeholders want to
blame each other for the problem. The sales manager accuses the production
manager, who puts the blame on the R&D manager. However, the R&D manager
is convinced that the problem was caused by the sales manager. What should
you do?
8 DESIGNING AND CONDUCTING ANALYSES
INTRODUCTION
Chapter 7 decomposed the client’s key question into a hierarchy of sub-questions. In
Chapter 8 we outline the next steps of the problem-solving method of the world’s
leading management consultancy firms in the ‘Advise & Activate’ group. These steps
are about problem-driven data collection and analysis. First, we outline how to
develop hypothetical answers to the sub-questions. In the second section, we discuss
the design of analyses to test these hypotheses. Third, we show how to create a work
plan for these analyses. The fourth part is about collecting the data. Fifth, we outline
how to guesstimate any missing data. Sixth, we show how to conduct the analyses.
The chapter ends with a conclusion, a running case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand a problem hypothesis
Understand the differences between decomposition analyses and comparison
analyses
Understand what data-analytical thinking is
Understand the various sources of data for problem analysis
Design decomposition analyses and comparison analyses
Develop a work plan
Make an estimation of missing data
Analyse the profit impact of revenue and cost gaps
Present analysis results.
DEVELOPING HYPOTHESES ABOUT THE CLIENT’S
PROBLEM
In the previous chapter we discussed three problem-solving models (all hypothesisdriven) that consultants may use:
Answer-First Problem-Solving (AF)
Structured Problem-Solving (SPS)
Sequential Analysis Problem-Solving (SA)
The probable answers of the Answer-First model are hypotheses about solutions. In
contrast, Structured Problem-Solving does not hypothesize about solutions but about
issues. According to this model consultants decompose key questions into issue
trees and develop hypotheses about the issues at the bottom of these trees.
Sequential Analysis also uses hypotheses. As in Structured Problem-Solving, there
are hypotheses about aspects of problems. But after testing these explanatory
hypotheses, Sequential Analysis works with hypotheses about solutions, like AnswerFirst. Sequential Analysis distinguishes between two types of hypotheses:
hypotheses about problem explanations and hypotheses about solutions. Because of
the limited space, Figure 8.1 only shows the steps for developing explanatory
hypotheses. Chapter 9 shows the process for developing solution hypotheses.
Figure 8.1 A comparison of three problem-solving models
Developing possible explanations
Our focus is on the Sequential Analysis model. Figure 7.16 outlined the process for
explaining problems. In Chapter 8 we apply that process. Consultants decompose
key questions into hierarchies or tree-structures of increasingly low-level subquestions. The most concrete sub-questions at the bottom of this tree are the
‘issues’. The next step for consultants is answering these sub-questions. You may
expect that consultants will collect and analyse data to answer these questions.
However, they postpone the data collection and analysis a bit more. Consultants start
by developing possible answers to these issues. If possible, consultants develop
several possible answers per issue.
Consultants start by developing possible answers to these issues
Let us take the example of the fictitious medical technology company X. Figure 8.2
focuses on one of the company’s sub-questions: Has X’s competitiveness declined?
Figure 8.2 From a sub-question to a prioritization of possible answers
You may ask: How to develop possible answers? Like the why question (Why does
the problem exist?), consultants distinguish between three alternative approaches.
Consultants look for cases that are analogical to their clients’ problems. Are
there other companies that had the same or a similar situation as their clients?
Consultants approach stakeholders inside or outside the client organization who
are close to the problem. Consultants ask them for their explanations for the
problems.
Consultants use frameworks to explain problems. They do literature research to
identify a model or framework that applies to the problem (see Chapter 7).
Consultants may combine these approaches as the approaches do not exclude each
other. For example, consultants may start with selecting a suitable framework. Then
they use that framework for formulating the questions for the knowledgeable
stakeholders.
The importance and likelihood of the possible answers
The decomposition of key questions into issues should be MECE (to refresh your
memory: Mutually Exclusive, Collectively Exhaustive). These sub-questions must be
mutually exclusive, and the set of questions should be collectively exhaustive.
Consultants strive for completeness of the issues because they do not want to
overlook anything. But the price of completeness is that not all sub-questions are
equally important and likely. Let’s explain importance and likelihood.
The importance of a possible answer means that that answer explains much of the
problem gap
The importance of a possible answer means that that answer explains much of
the problem gap. The larger the defined part of the gap, the more important the
answer is. For example, a client’s volume gap may be due to a decline of the
market or a decline of the client’s share of that market (see Figure 7.18).
Suppose the market decline explains 80 per cent of the volume gap, and the
share decline accounts for the remaining 20 per cent. In that case, the market
decline is a more important explanation than the share decline.
The likelihood of a possible answer means the chance that the answer is true.
Consultants ask: Is this answer realistic or just theoretical? How likely is it that
this answer, this statement, applies to the client’s problem? For example, a
competitiveness problem and a supply problem may explain the client’s share
decline (see Figure 7.18). In theory, supply problems can play a role in defining
the share decline. But this is very unlikely in the client’s case because there is no
indication that the client has encountered such problems in the past period.
However, there are indications that the client’s competitive position has
deteriorated. Consultants may conclude that the likelihood of supply problems is
low, whereas competitiveness issues have a high likelihood.
Action point
Always work with questions and hypotheses. Without them, you cannot distinguish
between relevant and irrelevant data.
Evaluating and prioritizing possible answers
Consultants work with several possible answers that require testing. Such testing
means collecting and analysing data. Data collection and analysis are timeconsuming and thus costly. Consultants do not want to waste time and effort on
unimportant or unlikely answers. Instead, they want to focus their time and effort on
the possible solutions that are most important and likely.
Therefore, consultants evaluate the possible answers. They assess the importance
and likelihood of these answers. You may ask: How can you do that before you do
the analysis? Before the analysis, it is a judgement of the importance and likelihood.
Consultants can use their own experience for this judgement of each possible
answer. Besides they may consult knowledgeable stakeholders and other experts for
their judgement. Next, consultants compare the judged importance and likelihood of
the alternative possible answers. Based on the comparison, they select and prioritize
the most important and likely answers. You may wonder: how many explanations do I
need? The goal is to explain the client’s problem gap, or at least most of it. If a single
answer already covers 80 to 90 per cent of the gap, that could be enough. It depends
on how demanding the client is. Do clients want to have 100 per cent of the gap
declared, or are they satisfied with less? If a single answer does not explain the
client’s required part of the gap, consultants will have to add as many explanations as
they need until they meet the client’s minimum requirement.
Action point
Consult with the client about the desired part of the problem gap that requires an
explanation. Keep in mind the 80/20 rule. It may take 20 per cent of your time to
explain 80 per cent of the problem and 80 per cent of your time for the gap’s
remaining 20 per cent.
Developing problem hypotheses
The prioritized possible answers become the hypotheses for the explanation of the
client’s problem. This problem hypothesis is a possible answer to the client’s issue.
We illustrate it with this sub-question: ‘Has customer demand diminished?’.
Consultants have defined two possible answers.
Increased price sensitivity contributed to the decline of X’s competitiveness.
A change of customer (non-price) product preferences contributed to the decline
of X’s competitiveness.
Based on their judgement of the importance and likelihood of these possible answers,
the consultants select and prioritize the first possible answer as their initial
hypothesis. Please note the adjective ‘initial’. The test results of the initial or first
hypothesis may not support that hypothesis. Then consultants reject the initial
explanation. Now they must develop an alternative or second hypothesis.
Consultants update their hypotheses when they find new facts and/or gain new
insights. The process of hypothesis development and testing continues until
consultants have a supported explanation of the client’s problem.
The process of hypothesis development and testing continues until consultants have
a supported explanation of the client’s problem
DESIGNING ANALYSES FOR HYPOTHESIS
TESTING
Testing problem hypotheses
You may ask: How to test a problem hypothesis? Consultants do not immediately
dive into the data. Instead they think backward. This means that consultants start with
the end in mind, which is the hypothesis test. Before consultants collect the data, they
need to know what data are relevant for that test. You may ask: What is the test of a
hypothesis? The test is an analysis that leads to support of a possible explanation of
the client’s problem or not. Consultants need to identify the proof or evidence that the
client and any other relevant stakeholders need to accept such an explanation.
Required proof
The proof determines whether the client and any other relevant stakeholders will
accept an explanation of the problem. This explanation influences solution
development as the solution should address the problem causes. Therefore, the
definition of the proof has significant implications for the consultancy project.
Consultants ask themselves: What proof do the client and any other relevant
stakeholders need to accept an explanation of the problem? The nature of the
problem explanation, the risk attitude of the client and other relevant stakeholders,
and the type of decision influence the required proof. Consultants may use the
following questions to determine the proof.
How controversial is the explanation of the problem? If the problem cause is
logical and intuitive, the client and the relevant stakeholders will require less
proof than if the answer is against their assumptions.
How risk-averse are the client and the relevant stakeholders? A risk-averse
individual wants more proof than a less risk-averse one.
How much accuracy is required for the client and the relevant stakeholders to
decide? Does the explanation have to be very accurate, or is a rough
approximation enough? In some cases, clients want very precise answers while
in other situations a ballpark range is enough.
How much value is at stake for clients and relevant stakeholders? With
increasing stakes, they want more depth of analysis.
Let us take the example of company X that faces a decline in profitability. The CEO of
X wants a precise assessment of the customer price sensitivity before making
decisions about the price. But take the example of business school B and the
opportunity of online education. The board wants to know whether the school can
offer online education economically. Suppose the new students’ willingness to pay for
online education is well below the school’s cost. In that case, it makes no difference
to the decision to serve these new students whether the price is 5 or 15 per cent
below the cost. In both cases, the school will not be able to educate the new students
economically. In this project, a rough approximation of the willingness to pay is
enough.
Draw the proof
Before the data collection, consultants already create a drawing of the proof
You may ask: What should the proof look like? Before the data collection, consultants
already create a drawing of the proof. They picture the results of their analyses.
Typically, consultants make PowerPoint slides with figures or tables. They do not
conduct a study and then start to think about presenting the results to their client.
Instead, they start with the PowerPoint of the proof. It does not mean that consultants
want to confirm their hypotheses. But if the analysis supports the hypothesis,
consultants should know how to present the analysis result to the client. What
graphical presentation will convince the client? They think in advance about a
convincing presentation. If they cannot come up with a convincing presentation of an
analysis, then they consider a better analysis.
The order of steps
The next question for consultants is: What kind of analysis can provide the required
proof? The proof influences the relevant analysis. The analysis design defines the
relevant variables and the data requirements. The data in their turn point to the
appropriate data sources. The data sources influence the choice of data collection
methods. Let us illustrate the steps with the example of company X. As the subquestion of Figure 8.2 is complicated, we choose a different one. Figure 8.3 shows
the order of actions from an issue to a data collection method. Later in this chapter
we discuss the sub-question of Figure 8.2.
Figure 8.3 Order of steps from an issue to a data collection method
Structured Problem-Solving
Though the book’s focus is on the Sequential Analysis Problem-Solving model, we
also want to give you an idea of how the Structured Problem-Solving model works.
Figure 8.4 shows the big picture of the structured model. We talk you through the
process steps.
1. Consultants decompose the client’s key question into a hierarchy or tree
structure of sub-questions. This figure shows an issue tree of only two levels
(sub-questions and issues), but the number of layers may be higher or lower.
2. Consultants develop possible answers for each issue.
3. Consultants evaluate these possible answers (based on perceived importance
and likelihood) and select the prioritized answers as their initial hypotheses.
4. Consultants design analyses for testing the hypotheses.
5. Consultants identify the data that are required for the analyses.
6. Consultants identify the sources where to find these data.
7. Consultants select the method for collecting these data.
Figure 8.4 Planning of analyses and work in Structured Problem-Solving
Basic forms of analysis
Consultants distinguish between two basic forms of analysis: decomposition and
comparison
Consultants distinguish between two basic forms of analysis: decomposition and
comparison. Chapter 7 discussed the decomposition of key questions.
Decomposition of the whole into its constituent components facilitates the study of the
whole. Another basic analysis is the comparison of the client’s problem with a
comparable company. Consultants may call the comparison analysis a ‘benchmark
analysis’. Comparing the client with an analogical case can explain the client’s
problem. Consultants can use the problem causes of the other company to clarify the
client’s problem. Consultants can also compare the client with a successful case. The
differences between the client and the successful company may explain the client’s
problem.
Consultants can put the client side by side with a comparable company, which is an
external comparison. For example, a client’s weak pricing capability lowers the
profitability. Consultants have done a pricing benchmark study. They benchmark the
client’s pricing against the (industry’s) best practice and analyse the differences
between the pricing-practices of the client and the best practice company.
But consultants can also do an internal comparison of various parts or units of their
client. For example, consultants can compare the costs of the different production
plants of the client. Alternatively, consultants can compare the revenue figures of the
various account managers of the client.
Decomposition analysis
We illustrate the decomposition analysis with the example of X. Consultants
decompose the following sub-question (see Figure 8.2): Why has X’s competitiveness
declined? Competitiveness is the whole that is too abstract to analyse. Therefore,
consultants decompose it into its constituent components. In this example, we look
for the drivers of competitiveness. Consultants distinguish between three alternative
approaches to decompose the competitiveness into its determinants or drivers:
experience (of the consultants, the client, any knowledgeable stakeholders, and
other experts)
analogies
frameworks.
Frameworks
In the example of Figure 8.2, consultants use the third approach. They choose the ‘3C model’ of Ohmae (1991): the client Company, its Customers, and its Competitors. If
you are not familiar with this model, you may wonder: What is the logic of this model?
The client company and its competitors compete for the demand of the customers.
The question arises: How do the customers decide between the product of the
company and the product of the competitors? Here we use the ‘Blue Ocean Strategy
Canvas’ framework of Kim and Mauborgne. This framework maps the decision
factors that the customers use to choose between the focal company (the client) and
its competitors. For example, the customers may look at the price and quality of the
product. The canvas visualizes how customers perceive how the focal company and
its competitors score on each factor.
The question arises: How important are these decision factors to the customers? Are
all aspects equally valuable to the customer, or are some factors more influential than
others? The factor’s importance is the weight that the customer attaches to a factor in
the purchase decision. Consultants can decompose competitiveness into the decision
factors and their weights. Let’s assume that in the example, customers use four
decision factors, each of which is a determinant of competitiveness. These four
determinants or drivers are mutually exclusive and collectively exhaustive, or MECE.
Figure 8.5 shows the decomposition analysis of competitiveness. Consultants also
call it a ‘driver analysis’.
Figure 8.5 A decomposition analysis of competitiveness
Comparison analysis
We also illustrate the comparative analysis with the example of X’s competitiveness
issue. Consultants compare X with a competitor. Figure 8.6 shows the situation
before the decline of the competitiveness of X. We refer to this situation as the ‘old
situation’. This is an external comparison. As mentioned earlier, consultants can also
conduct an internal comparison. Later in this chapter, we provide an example by
comparing the costs of the different production plants of X.
Figure 8.6 A comparison analysis of company X and competitor before the decline of
X’s competitiveness
Examples of analyses
Figure 8.7 provides some examples of popular analyses of consultants. Pareto
analyses of profit, revenues, and costs (see Chapter 7) are segmentations in search
of uneven distributions (like 80/20). Profit pool analysis (Bain & Company) is about an
uneven distribution of profit along an industry’s value chain. Customer needs and
profitability analysis speak for themselves. Overhead value analysis (McKinsey &
Company) is about value and costs of overhead products and services that flow
between organizational units of the client, like forms, reports, analyses, advice, and
decisions. Operational effectiveness analysis can use value stream mapping or
material-and-information flow mapping, which is a lean management method. An
example of sales force effectiveness analysis is a sales pipeline analysis (see
Chapter 5). Sufficient information about these analyses is available on the Internet
and in the literature. We will therefore not go into it further.
Figure 8.7 Examples of analyses
DEVELOPING A WORK PLAN
It is the job of project managers to draw up work plans for consultants
It is the job of project managers to draw up work plans for consultants. Work plans
outline how to test problem hypotheses. These plans specify analysis designs, data
sources, and appropriate data collection methods. Moreover, managers set due dates
for the analyses and assign responsibilities to consultants. It is the work of
consultants to collect the data and conduct the analyses. To do their work correctly,
(junior) consultants need detailed instructions. Figure 8.8 shows a work plan for
company X. We include all three possible answers of Figure 8.2 to provide you with
more examples of hypothesis testing. In real life, managers will only develop an initial
hypothesis for the priority answer.
Figure 8.8 A work plan for testing problem hypotheses
Prioritizing dependent activities
Project managers need to schedule the work plan activities. Thereby, they consider
any dependencies between these activities. Analytical activities depend on data.
Therefore, data collection precedes analyses. Some analyses may need to precede
others. Moreover, managers distinguish between activities that are under their control
and actions where they depend on inputs or other support from clients’ employees
and other stakeholders. Managers try to carry out these ‘dependent’ activities as
quickly as possible to avoid delays.
Managing the workload
Managers must ensure that the work is feasible for the consultants. Consultancy is
hard work, but there are limits to what managers can ask from consultants. Managers
must distinguish between ‘need-to-have’ analyses and ‘nice-to-have’ analyses.
Consultants should do no unnecessary work. Moreover, managers should not go
beyond the depth of analysis that clients can understand. Furthermore, managers
must, in a diplomatic but firm way, prevent clients from introducing new questions and
other requests during projects that fall outside the project’s scope: a phenomenon
called ‘scope creep’.
Teamwork
Work plans are instructions for consultants. Therefore, they should be clear and
concrete. Consultants should understand what to do and how to do it. Ideally, plans
should explain themselves. Work plans are a means to divide the project work among
the consultants on the team. Plans allow managers to delegate the project work.
Consultants collect and analyse data, while managers supervise their work and check
the quality of data collection and analyses. Projects are teamwork. Team members
may work together, act as each other’s sounding board, and help each other in other
ways. Consultants cooperate with each other, but they may also work with client
employees. Some employees may even be part of a project team. Consultants and
client employees may work together on data collection and analyses. During team
meetings, team members provide status updates of their work, discuss any
challenges, and exchange thoughts.
COLLECTING THE DATA
Analyses require data. Data are the fuel of the ‘analysis engine’. Figure 8.9 provides
an overview of data sources for values of variables. For example, consultants want to
analyse the price sensitivity of the client’s customers. The values of that variable are
numbers. Consultants prefer to work with numerical data. In the example they want to
measure the price sensitivity. Consultants do research to collect the data. We
distinguish between field research and desk research. Whereas field research is
about collecting new (primary) data, desk research is about available (secondary)
data. Consultants always check first whether the required data are already available
through desk research. Only if data are not available, then they will do field research,
which is much more time-consuming and expensive than desk research. Figure 8.9
distinguishes between six primary data sources of field research. If data are not
available through desk research and if field research is not feasible, then consultants
revert to judgement of values. Figure 8.9 distinguishes between sources of facts and
sources of judgements.
Figure 8.9 Sources of data
Action point
Do not do field research if there is already appropriate secondary data available. Do
not reinvent the wheel.
Desk research
First, consultants search for data that are available inside their consultancy firm. They
use their firm’s intranet to search the consultancy’s knowledge management system.
Many large consultancy firms have massive proprietary knowledge bases. Through
their previous client projects, consultancies have accumulated extensive data about
client organizations, sectors, and countries. Consultants always start with their own
(proprietary) data. Subsequently, they look for secondary data outside their
consultancy, for example external databases on the Internet.
Consultants always start with their own (proprietary) data
A good starting point for information about clients is their own publications, such as
annual reports and company websites. In particular, ‘About us’ pages and investor
relations pages are valuable sources. Other data sources are publications by industry
associations and (paid) research reports by market research firms and other
consultancy firms. Publications by the media are another source. Furthermore,
publications of (supranational) governmental agencies can provide (statistical) data
about clients, sectors, and countries. Sources should be reliable and respectable.
Therefore, consultants critically look at data sources.
Data requests
Consultants may also request data from client employees. Such requests must be
very precise and clear. Consultants do not ask for ‘revenues’ but specify their request
in detail, such as the period to which the revenue relates, currencies if applicable,
and a revenue split by country. Often, consultants provide templates with the
requested data formats. Requests should be ‘fool proof’, or impossible to misinterpret
for client employees or other data owners. Consultants do not expect people to
understand their requests immediately and therefore make the same points multiple
times, but in various ways. Furthermore, consultants send regular reminders to avoid
delays. After receiving the requested data, consultants send thank you notes to the
data providers.
Consultants are careful with Internet searches
Unreliable data
Consultants are careful with Internet searches. There is not only fake news on the
web, but there are other problems with data quality as well. Consultants take a critical
stance against data on the Internet. They critically look at the data source and ask: Is
this resource reliable? One indicator of the quality of web resources is an explanation
of the production of the data. Is the web resource transparent or not about its
methodology and data sources? Governmental publications are generally reliable
unless the governments are not. Consultants may also compare data from different
sources to check for consistency. Do the data from various sources match, or are
there significant differences? If so, can consultants explain these differences?
Big data
Before the days of the Internet (before the 1990s), data was scarce. There was much
less secondary data, and surveys were relatively expensive. Consultants, therefore,
had much fewer data at their disposal. The Internet has changed that completely.
Because of the Internet, we now have the phenomenon of ‘big data’. Clients and
other companies nowadays can collect data via the Internet. They can track the
Internet search and buying behaviour of their customers. Examples of social media
companies (such as Facebook) and other companies (such as Google) that
specialize in collecting and selling data about customers are well-known. Their
services are often free, but customers pay with their data (privacy), which can be sold
to other companies. Due to the Internet, consultants have an abundance of data at
their disposal. One speaks of ‘data pools’ and ‘data lakes’.
The Internet of Things
In addition to the Internet of people, there is the Internet of Things (IoT). The IoT is
the Internet-based network of physical devices or things (such as, cars or machines)
that have sensors and software for exchanging data with other things and systems,
and which can act autonomously. These intelligence devices allow for remote control
of operations, such as the ‘smart home’ or the remote health monitoring of people.
Companies collect data from these intelligent devices. The IoT can be a data source
for consultants as well.
Interview
What consultants ask in an interview should not be available through desk research
because interviewees do not want to waste their time. Moreover, most client
employees will be suspicious of consultants and probably will not be eager to talk to
consultants anyway. These employees may ask themselves:
What are the consultants doing here?
What do they want to change here?
Are they going to recommend my lay-off?
Consultants will have to convince these external stakeholders of the importance of
interviews
Higher management of clients can order employees to speak to consultants. But
forcing interviews is more complex, if not impossible, with external stakeholders, such
as business partners. Consultants will have to convince these external stakeholders
of the importance of interviews. Consultants can try to convince interview candidates
that interviews are also in these persons’ interests. Both clients and these individuals
will benefit from interviews. Consultants may also offer candidates something in
return for interviews. So, consultants create ‘win–win’ deals. If candidates cooperate
in the discussions, consultants will provide them with relevant information. For
example, interviewees receive (small) parts of the consultancy reports. These
gestures may work with clients’ business partners or peers. Consultants also send
thank you notes to the interviewees directly after the interviews.
Workshop and focus group
Consultants not only use interviews for communication with stakeholders. They also
meet with groups of stakeholders. Such group meetings have the advantage that
individual stakeholders can respond to each other. Consultants use workshops and
focus groups (discussion groups) to brainstorm about possible explanations of
problems or about possible solutions. Group meeting expenses also lend themselves
to reciprocal coordination and alignment of participants. It is also self-serving to be
considerate because good relationships with stakeholders are a critical success
factor for consultancy projects.
Action point
Before approaching stakeholders for data, ask yourself what these persons’ interests
are. Are their interests aligned with the client, or do they have secret agendas?
Interview preparation
Consultants define their goals before the interviews. They determine in advance what
they want to get out of the interviews. Do they want information from interviewees, or
do consultants want that interviewees check their findings? What information do
consultants want to collect or check? Consultants also think about the interviewee’s
position. If the interviewee is a stakeholder, consultants ask themselves: What are
this stakeholder’s interests, and how great is his or her power? Consultants must be
wary of stakeholders who have different and even conflicting agendas. These
individuals may intentionally misinform consultants to lead them astray. Consultants
must be very critical of these interviewees. They must keep asking critical questions
and not take stakeholders’ answers for granted.
Interview agendas
Consultants always have plans for interviews. They prepare plans for all interviews.
Consultants create a list of questions in advance. They also ask control questions to
check whether interviewees have fully understood questions. You may ask: In what
order do consultants ask their questions? Consultants start with simple questions that
interviewees can and will quickly answer. At the end of interviews, consultants only
ask the most difficult and sensitive questions. If interviewees then no longer want to
cooperate, consultants have already requested most of their questions. A nice ending
of interviews is to ask what you did not ask but what is essential. Consultants may
use this question: Have I forgotten to ask for something important? Consultants ask if
they can come back if they unexpectedly have new questions. We emphasize the
importance of sending thank you notes to interviewees.
Action point
Save the most challenging and sensitive questions to the end of the interview.
Survey
Surveys are a suitable tool if the number of people to be questioned is vast.
Interviews then become too time-consuming and expensive. Moreover, surveys lend
themselves to statistics, which are convincing evidence for clients. Designing good
surveys is a skill, but artificial intelligence is also increasingly important in this area:
intelligent survey tools. The survey questions must be straightforward because
consultants are not present when survey participants must answer these questions.
Consultants must be sure that the questions measure what they want to measure. If
survey participants interpret the questions differently, their answers are worthless.
Consultants will therefore want to test their surveys in advance among groups of test
subjects. Consultants may also outsource surveys to market research firms.
Observation
Consultants may use what they call ‘day in the life of’ (DILO) studies
Observation of people’s behaviour, such as the client’s employees, can be a valuable
data source for consultants. Consultants may decide not to ask persons questions
but look at what they are doing. People can give socially desirable answers or
answers convenient for them because of personal agendas. Moreover, individuals
may be unable to put something into words. They may not even be aware of specific
knowledge. Consultants may use what they call ‘day in the life of’ (DILO) studies,
which means that the consultants follow someone during a working day. What does
this person’s day look like? For example, how do these sales representatives spend
their time? What exactly are they doing? How do they do it? Consultants hope to
discover unexpected, surprising behaviour. For example, client employees can use
routines that are not by the book. Consultants can also detect hidden best practices
this way. For example, what do the client’s best salespeople do differently from the
rest? It is vital that the observations do not influence the observed. Consultants do
not want the observed people to change their behaviour because of the consultants’
presence.
Competitive intelligence
Desk research
Competitors are the most challenging subjects of data collection
Competitors are the most challenging subjects of data collection. Competitive
intelligence is the practice of collecting data about competitors. Consultants start with
desk research. If the required data is already available, consultants do not have to do
field research or, so to speak, reinvent the wheel. First, they check data published by
competitors. Consultants may study annual reports if competitors are listed
companies. Other publications by competitors on their websites or the Internet may
also prove insightful. Consultants may also study documents that others, such as
governments, publish about competitors. Research reports by market researchers,
industry experts, or management consultancies can also be valuable information
sources about competitors.
Moreover, consultants may check any published profiles of a competitor’s top
managers or executives. Announcements of significant personnel changes like the
hiring and departure of a competitor’s top managers are also relevant. Finally,
consultants check any publicity about a competitor’s executives’ critical decisions,
such as market entries, product development, R&D, investments in plants, mass layoffs, corporate restructuring, M&A deals, and joint ventures.
Field research
After consultants have exhausted the opportunities of desk research about
competitors, it is time for field research into competitors’ products and/or services.
Product descriptions of ingredients are typically available. Another opportunity is to
do ‘reverse engineering’ of competitors’ products. Experts can take the products
apart to understand their components and assembly. Consultants may also analyse
competitors’ prices if they are public. Competitors’ promotion and advertisement
activities are also visible.
The possibilities for competitive analysis are endless but consultants distance
themselves from illegal and unethical practices such as industrial espionage. For
example, consultants may study competitors’ distribution channels, such as
wholesale and retail outlets and websites. They may also learn from competitors’
offices and other buildings. The number and size of offices can be proxies for the
number of white-collar workers, while the number and size of production plants can
serve as proxies for the number of blue-collar workers. Besides, consultants may
observe the inbound and outbound traffic from the competitors’ plants. These
observations allow consultants to determine which suppliers, distributors, and
customers come and go and how often.
Interviews
Another competitive intelligence source is interviews with former employees of
competitors who now work for the client or business partners. Additionally,
consultants may interview the client’s customers who also buy from competitors or
bought from them in the past. Likewise, consultants may question the client’s
suppliers, distributors, and other business partners who also work, or have worked,
with competitors. Suppliers may inform consultants what ingredients, materials,
machines, and equipment competitors buy. Interviews with stock market analysts,
company watchers, and industry experts may also provide valuable information about
competitors.
Action point
When you ask stakeholders for possible explanations for the client’s problem, keep
asking why, why, why. Ask why that is an explanation. Also, ask what evidence there
is for the stakeholders’ answers.
CREATING THE DATA
Fact-based analysis
But sooner or later, consultants will find themselves in situations where not all
necessary data are available
Consultants strive for fact-based analysis. They will use all (legal and ethical)
possibilities to collect the necessary data. Consultants are willing to put in a lot of
effort to get the data. But sooner or later, consultants will find themselves in situations
where not all necessary data are available. Data collection can be too costly, or too
time-consuming, to collect. Data may not exist or may not be (legally and ethically)
accessible (such as data about competitors). If consultants cannot find the data, they
will not give up. Instead, they aim for a second-best solution. If they cannot collect
that data, then they create the missing data. Please make no mistake about it;
creating information is different from making up data. Consultants do not fabricate
data or dream up data. They have responsible ways to develop data. Here we
discuss some responsible approaches to create data. These approaches are:
Judging
Experimenting
Simulating
Estimating
Action point
If you cannot find the data, then do not say to your manager ‘I cannot do my analysis
because the data are not available’. Instead, you should estimate these data in a
responsible way.
Judging
Consultants may use judgements of clients and other knowledgeable stakeholders,
and other experts
Consultants may also use judgements of clients and other knowledgeable
stakeholders, and other experts. Such expert opinions are subjective and can be
intuitive. Experts may not be able to substantiate their views. The persuasiveness of
the judgement depends on the reputation of the expert. Even better if experts share a
specific assessment. The case becomes stronger if experts confirm each other’s
judgement. Consultants may use a panel of experts to develop a consensus on a
matter. A well-known approach is the so-called ‘Delphi method’.
Experimenting
As stated before, consultants can ask stakeholders or other knowledgeable
individuals for their judgement. If these individuals may give socially desirable
answers then observation of behaviour may be a solution. If observation is no option,
then consultants can resort to experiments. Suppose the missing data is about a
causal relationship between an independent and a dependent variable, such as the
price of a product and the customer demand for that product. In that case,
consultants can manipulate the independent variable, the price, to see what happens
to the dependent variable, the demand. Typically, consultants work with two groups: a
manipulated group and a control group (no manipulation). Consultants then compare
the outcomes of the groups.
Simulating
Another approach to data creation is computer simulations. Here consultants use
computer models to create experiments. Consultants build computer models about
the relationships between known data and the missing data. They can vary the input
variables to see how the output variables will change. Consultants may also opt for
random variation of inputs, the so-called ‘Monte Carlo’ simulations. The availability of
big data creates new opportunities to create advanced data-analytical models. But
when things get very complicated, consultants outsource the model work to data
analysts or data scientists inside or outside the consultancy firm.
Estimating
Even experienced professionals may be reluctant to make estimates
Consultants can also estimate the missing data. Estimating scares many people.
Even experienced professionals may be reluctant to make estimates. These people
may perceive estimates as unscientific and manipulative. Many experts are afraid of
critique on their assessment. Criticism can be a tool for consultants, but only at the
right time. Criticism during consultants’ presentations of the advice is too late.
Therefore, consultants present their estimations to clients or other knowledgeable
stakeholders at an earlier stage. Of course, estimations should be intelligent or
educated. Estimates should not be wild guesses without some substantiation but
have realistic assumptions.
Action point
If experts are reluctant to make estimates, then make estimates yourself. Present
your estimates to the experts and ask if they agree. Now they must either agree or
criticize your estimates. Use their criticism to make better estimates that will receive
more support among stakeholders because you have incorporated the experts’
responses.
Constructive criticism
Assume that the data are unknown, and the consultants are the first to attempt an
estimation. Consultants can ask clients or other knowledgeable stakeholders for
constructive criticism of these estimates. Clients must consider the consultants’
methods of assessment. If clients come up with corrections or improvements, the
estimates get better, and clients feel involved and heard. This type of criticism at an
early point in the project does not detract from the consultants’ reputation.
Consultants typically will not ask clients for estimates. For the before mentioned
reasons, clients will be reluctant to make estimations. Assertive clients will reply to
the consultants: ‘This analysis is why I hired you’. It is much easier and safer for
clients and other knowledgeable parties to criticize the consultants’ estimates. Picking
holes in an existing estimation is more attractive than making an estimation yourself.
However, the criticism of clients or other knowledgeable stakeholders helps
consultants to improve their estimates.
Example
We use the fictitious example of the business school B to illustrate the process of
making estimations. Assume it is 2017. The question is: How to estimate the size of
the online education market? First, the consultants must decompose the education
market to facilitate the assessment. Figure 8.10 shows their structuring approach.
Figure 8.10 A decomposition of education programs
The consultants distinguish between cannibalization and expansion as a result of the
introduction of online education. Cannibalization refers to present users of campus
education switching to online education, either in hybrid form, that is a mix of campus
and online, or pure online form. Cannibalization means that hybrid and pure online
programs cannibalize campus education. Cannibalization does not cause market
growth. It is a ‘zero sum’ game. In contrast, expansion is about individuals choosing
online education who would otherwise not choose campus education. Expansion is
about market growth.
The consultants structure the analysis of cannibalization and expansion. The two
analytical variables are the present status of people and their future status. The
present status can be user of full-time (campus) education, user of part-time
(campus) education, or non-user of education. The willingness to buy one or another
type of education indicates the future status of these people. The consultants may
survey to assess the customer’s willingness to buy education. Figure 8.11 shows the
findings. For example, 20 per cent of the present users of full-time campus education
will continue to buy full-time campus education in the future. But another 20 per cent
will switch to full-time online education whereas the remaining 60 per cent will buy
full-time hybrid education.
Figure 8.11 An estimation of the present status and future preferences
Steps of an estimation process
The consultants already know the present number of education users. The challenge
is to estimate the number of non-users who may be willing to use online education. It
is about gauging the number of qualified candidates who are not present customers
of management education programmes. As a proxy, or stand-in indicator, of qualified
candidates who are not current management education customers, the consultants
take junior managers with a high educational degree in countries that are relatively
distant from campuses. These are candidates for online education as the consultants
assume that distance to campus is a barrier to campus education.
Figure 8.12 visualizes the consultants’ estimation approach, which allow them to use
official statistics. The consultants start at the country level and create a list of faraway
lands. These are the countries where the non-users live. Next, the consultants look at
the number of businesses or companies per country. Governmental statistics can
provide these numbers. Then the consultants estimate the number of employees per
business. Here the consultants can use public statistics on the number of companies
by size class. The span of control, the number of subordinates per manager, allows
an estimation of the number of (junior) managers per business (number of people per
business divided by the span of control). Finally, the consultants must assess the
fraction of managers with a higher educational degree. The consultants may benefit
from official statistics on the academic level of the labour force. The number of nonusers is a formula: number of countries x number of businesses x number of junior
managers per business x percent higher educational degree.
Figure 8.12 An estimation of the number of junior managers in distant countries
ANALYSING THE DATA
Cooking
Project managers have designed the analyses and consultants have collected or
created the data. Now the consultants are ready to analyse the data. The analysis
design is the recipe, the data are the ingredients, and the analysing is the cooking.
Managers design the analyses and consultants follow the procedure from the work
plan to analyse the data. For simple quantitative analysis, consultants use a
spreadsheet program. Nowadays, with big data, studies have become more
complicated and sophisticated. Such research requires artificial intelligence-driven
analytics software. If the analytics are advanced, consultancy firms may not use their
consultants but resort to data analysts or even data scientists. Large consultancies
have in-house analysts and scientists (see Chapter 2).
The analysis design is the recipe, the data are the ingredients, and the analysing is
the cooking
Analysing the profit impact of a revenue gap and a cost gap
Consultants can explain profit gaps in terms of revenues and costs. Again, we use
the example of company X. This company has both a revenue gap and a cost gap.
Figure 8.13 presents their financial results.
Figure 8.13 X’s financial results
X’s profit gap is 0.92 billion euros. You may ask: How to measure the contribution of a
revenue gap to a profit gap? Consultants can isolate a revenue gap’s impact on a
profit gap by assuming there is no cost gap. Similarly, consultants can separate the
effect of a cost gap. For the example of X, we show how consultants can calculate
the profit impact of the revenue gap and the cost gap.
Consultants can isolate the effect of the revenue gap on profit as follows.
Consultants assume that X only has a revenue gap and that the costs are
according to the objective. The cost gap is thus zero. Then the profit gap will be
0.76 billion euro, which is the effect of the revenue gap.
Consultants can calculate the contribution of the cost gap in the following way.
They take the difference in fixed cost (objective versus realization) and they
multiply the difference in variable costs (objective versus realization) with the
realized sales volume. This cost gap adds 0.16 billion to the profit gap.
The contribution of the revenue gap (0.76) plus the effect of the cost gap (0.16)
equals the profit gap (0.92). Figure 8.14 visualizes the contributions of the
revenue and cost gaps in the form of a waterfall.
Figure 8.14 An explanation of X’s profit gap
Alternative way
We acknowledge that there is another way to calculate the profit contributions of the
revenue and cost gap. Consultants can also isolate the impact of the cost gap on
profit as follows.
1. They assume that X only has a cost gap and that the revenue is according to the
objective. The revenue gap is thus zero. Then the contribution of the cost gap to
the profit gap will be 0.18 billion euro.
2. They calculate the contribution of the revenue gap. They take the difference in
revenues and use the realized variable unit costs and fixed costs. This effect
adds 0.74 billion to the profit gap.
The absolute amounts of the contributions differ slightly. Still, the revenue gap
remains by far the most critical contributor to the profit gap. This example shows that
it is important to have a substantiation for your calculation.
Action point
Make sure you can always substantiate your calculations with formulas and
assumptions.
A competitiveness analysis
We illustrate the comparative analysis with the example of the competitiveness issue
of company X. We compare X with its most important competitor. Consultants
compare X with the competitor in the new situation after the decline of X’s
competitiveness. Figure 8.15 shows the outcomes of the comparative analysis in the
new situation. Please note that not only the scores differ from the situation before the
decline (as presented in Figure 8.6), but so do the weights.
Figure 8.15 A comparison analysis of company X and competitor after the decline of
X’s competitiveness
Visualization
Consultants strive to visualize the analysis outcomes because most people
understand things better when visualized. Figure 8.16 compares the graphs before
and after X’s decline of competitiveness. The vertical axis depicts the weighted score,
that is, the absolute score multiplied with that factor’s weight (weights are in
brackets). The top graph shows the old situation and the bottom diagram the new
situation. The rightmost columns show the total score, which is the sum of the
weighted scores of the four factors.
Figure 8.16 A comparison of X’s old and new situation
Explanation
Next, the consultants want to explain X’s competitiveness problem. The analyses
support all three hypotheses (see Figure 8.8). But the importance of each explanation
differs. The comparison of X’s sum of weighted scores with that of the competitor
(column ‘total’ in Figure 8.16) determines X’s competitiveness. In the old situation (top
graph in Figure 8.16), the totals of X and the competitor are the same: 4.1. In the new
position (bottom chart in Figure 8.16), X’s total is 0.8 points lower than the
competitor’s total. The difference in total scores depicts X’s competitiveness gap or
problem. The consultants calculate the contributions of each of the three explanations
to the competitive gap of 0.8 points.
The first explanation is about the change in weights due to the increased price
sensitivity (hypothesis: Increased price sensitivity contributed to the decline of
X’s competitiveness). The consultants isolate the change of weights by applying
the new weights to the old scores per factor. The total score of X falls to 3.9 while
the competitor’s score remains 4.1. The weight change thus explains 0.2 points
of the decline.
The second explanation is about the competitor’s price reduction (hypothesis:
Price reduction by competitor contributed to the decline of X’s competitiveness).
Applying the new weights to the change in price scores explains 0.5 points of the
drop.
Finally, the third hypothesis is about the weakening of X’s services (Hypothesis:
A deterioration of X’s customer services contributed to the decline of X’s
competitiveness). Applying the new weights to the change in services scores
explains the remaining 0.1 points of the decline.
The contributions of each of the three explanations are relevant information for
solution development. Consultants will prioritize the most important explanations of
the problem when developing solutions. Figure 8.17 visualizes the contributions of
the three causes in the form of a waterfall chart.
Figure 8.17 An explanation of X’s competitiveness problem
A cost analysis
Now we turn to the problem of X’s costs. The question arises: Where is the gap in the
costs of sales? The consultants compare the three plants of X that vary in production
volume. As consultants will not compare apples and oranges, they do not put the total
costs of these plants side by side but their cost per unit of product. Figure 8.18
displays that Z has the lowest unit costs and Q the highest. Therefore, the cost
problem is with Q. The consultants can segment costs even further and ask: Where is
Q’s biggest cost problem? The consultants now compare Q and Z per cost category
(bottom row in Figure 8.18: gap Q minus Z). The gap between Q and Z is most
significant for production costs: 45 thousand euros. Therefore, the consultants
prioritize the production cost gap between Q and Z.
Figure 8.18 A comparison of X’s unit costs per plant
Consultants always try to visualize their analysis outcomes. They show the graph in
the presentation and put the data table (Figure 8.18) in the appendix. Figure 8.19
visualizes the cost comparison of Figure 8.18.
Figure 8.19 A visual comparison of X’s unit costs per plant
Now the consultants must explain why Q does have a production cost gap. Please
note the difference with the question in Chapter 7: Why does X’s plant Q have a cost
of sales gap? (Figure 7.19). The consultants now exclude procurement costs as they
focus on production costs. Figure 8.20 distinguishes between three possible
explanations for too high production costs.
Figure 8.20 From a sub-question to a prioritization of possible answers
Although the priorities differ, we will treat all three explanations as hypotheses to
provide more insight into the technique. The consultants develop a work plan for
testing the three hypotheses (see Figure 8.21). For each hypothesis, they design the
appropriate analysis, which is a comparison analysis. The consultants may also
compare the client’s plant with the best practice plants in the client’s industry or
across industries. But consultants are careful not to compare apples and oranges.
Figure 8.21 A work plan for the cost analyses
Evaluation of consultants’ work
Consultancy managers delegate the data collection and analyses to consultants, but
they remain responsible. Therefore, managers must monitor consultants and check
their analysis results. Managers check:
Inputs: Have consultants used and correctly applied the prescribed sources and
data collection methods? Have consultants been sufficiently critical about the
quality of Internet data and data provided by client employees and other
stakeholders?
Methods and tools: Have consultants used the prescribed (data analysis)
methods and techniques and have they applied them correctly? In the case of
financial models, managers check that the models are well designed and
documented.
Analyses: In the case of quantitative analyses, managers make some control
calculations by way of sample.
Managers must have experience to evaluate consultants’ work quickly. For the
evaluation, it is not enough for consultants to give the analysis outcome: 42 million,
for example. Consultants must indicate precisely how they arrived at their outcome.
Consultants must properly document their work and specify their data sources. In
quantitative models, consultants must indicate the assumptions and formulas. Where
necessary, consultants must explain them. Only in this way can managers control
consultants’ work efficiently. It is also vital for clients that the creation of the analyses
outcomes is transparent. Such openness gives confidence in the results. The value of
the analytical insights depends on the quality of:
the hypotheses: original thinking and unique insights
the inputs: superior quality, depth, and quantity of data
the analyses: rigour and depth.
DATA-ANALYTICAL THINKING
Consultants generally do not do data science but cooperate with data scientists. This
book is an introduction into management consultancy instead of data science. As a
consultant you need some basic understanding of what data-analytical thinking is.
Therefore, we briefly touch on that subject. Data science is the result of two
developments: the emergence of big data and the growth of computer power.
1. Clients have increasing opportunities to collect data because of the Internet (and
the Internet of Things) and the digitization of their business processes. As a
result, clients have big data, which are data sets that are too large for traditional
statistical analyses.
2. Computer power continues to increase. According to Moore’s Law (effective
since 1965!), the number of transistors on a microchip doubles every two years
while the computing costs halve. The growing computing power allows for new
techniques for analysing data.
Data science or data-analytical thinking is about the use of these techniques for
extracting valuable knowledge from big data. Data mining is a specific form of data
science. It is about the automated search and discovery of patterns in big data.
Figure 8.22 presents the author’s interpretation of Shearer’s CRoss-Industry
Standard Process for Data Mining (CRISP-DM).
Figure 8.22 A data-analytical thinking process
We briefly touch upon the process stages.
Develop an understanding of the business and the problem. For example, the
client cannot realize its profit objective because it has many unprofitable
customers. The question is: Who are the most profitable customers?
Develop an understanding of the data. This step is about evaluating the available
and accessible data. To what extent do the data match the problem? What are
the strengths and limitations of the data?
Prepare the data. The data may not be in the format that the analytical
technologies require. In that case analysts need to convert the data into the
required format.
Develop a model. This is about the choice of analytical modelling technologies.
Evaluate the model. In this stage analysts assess the model’s effectiveness: Will
the model improve decision making? Can analysts have confidence in the
model?
Deploy the model. Analysts apply the model to solve the business problem. In
the example, to identify and predict what customers will be profitable.
There are several iterations in the model. In subsequent steps, analysts may gain
new insights that increase their understanding of the business problem, help them to
understand and prepare the data better, or improve the model.
Business Intelligence software for consultants
Consultants may use Business Intelligence (BI) software for Extraction,
Transformation, and Loading (ETL) of data from multiple sources and consolidating
these data for analyses. Due to limited space, we will limit ourselves to two examples
that are suitable for consultants to answer business questions. Alteryx is a platform
with artificial intelligence (AI) driven products for relatively simple analytics for
decision making. Tableau is a platform with ETL products for interactive visual
analytics and AI driven statistical modelling. Further description goes too far for this
book and can be found on the company websites (Alteryx.com and Tableau.com) and
other places on the Internet. We emphasize that there are several BI packages and
that the choice of examples does not constitute a quality assessment.
PRESENTING THE ANALYSIS RESULTS
Top-down slide design
Consultants generally present their results on PowerPoint slides. You may ask: How
do consultants design PowerPoint slides? They create slides in a top-down fashion.
Consultants begin with the message, which is the conclusion from the analysis
outcome. The message should be in the slide title. This statement does not only
consist of nouns but also contains verbs for clarification. For example, not just
‘Customer choices’ but ‘Customers choose A’.
Consultants follow two rules for slide design. The first rule is that the data in the slide
body should support the slide’s message. There should be no messages without
support. According to the second rule, the slide body should only have data needed
for the slide’s message. There should be no data that are unrelated to the title.
Consultants follow two rules for slide design. The first rule is that the data in the slide
body should support the slide’s message. There should be no messages without
support. According to the second rule, the slide body should only have data needed
for the slide’s message
The chart type
If possible, consultants visualize analyses results with charts. The saying is: A picture
says more than a thousand words. Consultants can present data in many ways.
There are many charts, such as line charts, pie charts, radar charts, funnel charts,
and waterfall charts. Spreadsheet models offer many chart types. The software may
even make recommendations for the chart type. But consultants still need to think
about the appropriate chart type. Consultants ask themselves: What is the best chart
for this specific analysis outcome? The suitable chart type varies with the analysis
outcome. Consultants always add a justification of data in the form of a reference at
the bottom of the slide.
Example
As an illustration, we translate the analysis outcome of Figure 8.11 into a slide. The
consultants first formulate the message they want to convey by interpreting the
analysis results. The table in Figure 8.11 contains much more detail than is necessary
for the message. It is a pitfall to show all data. People may want to show how much
work they have done, but it distracts from what matters: getting the message across.
The fuller the slide becomes, the more complex and tiring it becomes for clients to
understand its meaning. Consultants do not want clients to give up and lose attention.
Figure 8.23 presents the slide. Chapter 11 will elaborate on slide design.
Consultants do not want clients to give up and lose attention
Figure 8.23 Slide design
CONCLUSION
The consultants’ recommendations are about how best to improve their clients’
performance. The nature of that performance, such as profit, is generally quantitative.
Implementation of the advice means investments and costs, which are also
quantitative. Therefore, the argumentation for the recommendation must be
quantitative as well. The problem analysis does not necessarily have to be entirely
quantitative, but there should be at least some quantitative elements. Analysis
requires data, but data collection can be time-consuming and therefore costly.
Therefore, consultants evaluate and prioritize before they start analyses.
Moreover, some data are not available or too hard to access. If consultants cannot
collect specific data, then consultants should create these missing data in a
responsible way. Estimation is a way to create data. Understandably, people are
reluctant to make estimates. But without data, there is no analysis and thus no
argumentation for the advice. Consultants make smart guesstimates by involving
clients and other knowledgeable stakeholders in the estimation process. Such
involvement improves the estimation quality and gets support or ‘buy-in’, which is
essential for advice implementation.
Running Case
IDENTIFYING AND SEGMENTING THE GAP
The consultants apply the Sequential Analysis method. The method’s first question is:
Is there a problem? Keyboard has an operating profit gap (see Figure 6.16.). The
second question is: Where is the problem? The consultants segment Keyboard’s
profit gap by customers and calculate the profit for each customer. The analysis
outcomes in Figure 7.24 show how much the different customers contribute to the
profit.
The consultants distinguish between three customer segments. There is a thriving
segment named A: this is 60 per cent of the customers. There is a segment B,
consisting of 10 per cent of the customers, where Keyboard neither makes nor loses
money. Finally, 30 per cent of the customers are in segment C, where Keyboard loses
money. The consultants prioritize segment C to explain the profitability gap.
EXPLAINING THE GAP
The third question of Sequential Analysis is: Why does the problem exist? Why does
customer segment C have an operating profit gap? The previous chapter
decomposed that question (see Figure 7.25). One sub-question is: Is the average
gross profit margin per product that these customers buy too low? The consultants
break down that question further. Here we focus on one of the lower-level questions:
Why is the price of the products that these customers buy too low? Figure 8.24 uses
the 3C-model for the breakdown: customers, competition, and focal company
(Keyboard). For each issue, the consultants strive to generate alternative possible
answers. Next, they evaluate their alternatives and select the most important and
likely one. Figure 8.24 only shows the best possible answer per issue. In practice, the
consultants only formulate one initial hypothesis for the highest priority issue. But to
give you as many examples as possible, we show several hypotheses.
Figure 8.24 From a sub-question to a prioritization of possible answers
HYPOTHESIS TESTING
One initial hypothesis is: High customer price sensitivity contributes to low price.
Price sensitivity is about how customers respond to price changes. A well-known
concept is customer demand’s price elasticity, which is a change of buying volume
(number of products) divided by a price shift. The consultants do not have the data to
calculate the price elasticity. Still, they can survey Keyboard’s customers to collect
data about the customers’ willingness to buy at different prices. The consultants
present various prices for the focal product to the customers and ask the customers
about their willingness to buy that product at these prices. Figure 8.25 provides the
outcome of the analysis.
Figure 8.25 A price sensitivity analysis
VISUALIZING THE OUTCOMES
Consultants always try to visualize analysis outcomes. Figure 8.26 provides a
visualization of the price sensitivity analysis. Customers in the loss-making segment
C are the most responsive to price changes, whereas the profitable segment A
responds least. The sensitivity of segment B is in-between A and C.
Figure 8.26 A comparison of the price sensitivity of three types of customers
PRICE SENSITIVITY
The price of products bought by C- customers is too low because of these customers’
high price sensitivity. Keyboard keeps prices of these products relatively low because
otherwise C-customers will switch to the competition. But as a result, Keyboard
misses out on the potential profit to be made on customer segments A and B. These
customers are willing to pay a higher price. Now Keyboard fails to seize this profit
because it charges too low prices for the A- and B-customers. The lower prices are
not compensated by higher sales. Consultants can use the willingness-to-pay data to
calculate how much higher the prices for A- and B-customers can be. Multiplying the
price difference (between the actual price and the higher possible price) and the
number of products bought by A- and B-customers at the higher price gives the extra
profit.
PRICING MISTAKES
A second hypothesis is: Keyboard sets prices for price-insensitive products too low.
The low sensitivity allows for a higher price. Previous research has revealed that not
only do customers vary in price sensitivity, but so do products. We distinguish
between ‘key value products’ and ‘non-key value products’. All customers have a
higher price sensitivity for ‘key value products’ than for ‘non-key value products’.
Moreover, the ‘key value products’ pricing significantly influences the customers’
perception of the pricing of the complete product range. If the key value products
have low prices, then all customers perceive the complete product range to be lowpriced. The consultants identify the key value products by comparing the same
customers’ price sensitivity for different products. For example, how does the price
sensitivity of C-customers vary by products? Figure 8.27 shows the outcome of such
a comparative analysis of the price-sensitivity for products.
Figure 8.27 A comparison of the price sensitivity for ‘key value products’ and ‘nonkey value products’
Key-value products
Next, the consultants compare Keyboard’s pricing for ‘key value products’ and ‘nonkey value products’. If there is no difference, then Keyboard makes a pricing mistake.
The analysis reveals that Keyboard does not differentiate its pricing policy between
‘key value products’ and ‘non-key value products’. The analysis shows that the former
category has relatively high prices while the latter’s prices are relatively low. This
analysis helps the consultants discover a second pricing mistake of their client. On
the one hand, Keyboard charges a too low price when the price sensitivity for the
product is low; on the other hand, the client charges a too high price when the price
sensitivity for the product is high. The product’s high sensitivity suggests a lower
price.
By decreasing the prices of ‘key value products’, Keyboard will gain disproportionally
more sales volume for two reasons. First, the company will obtain more sales volume
of the key-value products because of the lower prices. Second, by improving the
customers’ perception of the pricing of the complete product range, the sales volume
will increase across the whole range. The consultants assess the volume changes
and use them to calculate the profit impact.
Non-key value products
By increasing the prices of ‘non-key value products’, Keyboard will lose less than the
proportional sales volume of these products. Therefore, the profit from these products
will increase. Again, the consultants can assess the volume change and calculate
their profit impact. The price increase of the ‘non-key value products’ has no negative
effect on the customer’s perception of the complete product range pricing. Therefore,
the profitability of the other products will not suffer.
COMPETITION
The third hypothesis is: Competition puts pressure on prices for commodity products
with little or no branding. The consultants analyse the relationship between, on the
one hand, the competitors’ price reductions or other actions for promoting commodity
products with little or no branding, and on the other hand, Keyboard’s price reductions
for these products. The consultants identify the client’s (most important) price
reductions of the past year. They then look at what percentage of the cases there
was a prior action by the competitor. The consultants can also put the commodity
products with little or no branding side by side to the other products. This analysis
reveals whether this competition problem is limited to the products mentioned or not.
The analyses support the hypothesis.
SUMMARY
This chapter takes a problem-driven approach to data collection and analysis. The
starting point are hypotheses about possible explanations of problems. Consultancy
managers first determine the minimum proof that clients need to accept these
hypothesized explanations. Next, managers design the analyses that can provide that
evidence. Consultants distinguish between driver analysis and benchmark analysis
as two basic forms of analysis. The first is decomposition of units of analysis into their
drivers, and the second is comparison of focal units of analysis with benchmarks.
Having designed the analyses, managers identify the data requirements and where
and how to collect the data. Finally, managers plan the work and allocate tasks to
consultants. Managers develop detailed instructions for consultants on what to do
and how to do it.
Consultants can collect data in various ways: desk research, observation,
interviewing, and surveys. But consultants may also create data using multiple,
responsible approaches: experiments, simulations, estimations, and judgements. To
develop intelligent guesstimates, consultants follow a systematic approach.
Managers supervise the whole process of data collection and analysis, including
checking consultants’ analysis outcomes. Checking is crucial because managers
delegate data collection and analysis to consultants but remain responsible for the
results.
REFERENCES
Baaij, M. G. (2011). The Consultancy Method: From Problem to Solution. The Hague,
NL: Academic Service (Dutch language).
Gadiesh, O. & Gilbert, J. L. (1998). How to Map Your Industry’s Profit Pool. Harvard
Business Review, 76(3), 149–166.
Heinrich, O., Mussa, A. & Zerbi, S. (2016). How retailers can improve price
perception profitably. The McKinsey Quarterly, November.
Kim, W. C. & Mauborgne, R. (2014). Blue Ocean Strategy: How to Create
Uncontested Market Space and Make the Competition Irrelevant. Cambridge, MA:
Harvard Business Review Press.
Neuman, J. L. (1975). Make Overhead Cuts that Last. Harvard Business Review,
53(3), 116–126.
Ohmae, K. (1991). The Mind of the Strategist: The Art of Japanese Management.
New York: McGraw-Hill.
Provost, F. & Fawcett, T. (2013). Data Science for Business: What you Need to Know
about Data Mining and Data-Analytic Thinking. Sebastopol, CA: O’Reilly Media.
Shearer, C. (2000). The CRISP-DM Model: The New Blueprint for Data Mining.
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Zelazny, G. (2007). They Say it with Charts Complete Toolkit. New York: McGraw-Hill.
QUESTIONS
1. You have asked a client’s employee for data that you know she has. However,
this employee keeps coming up with excuses for not having to provide the data.
What will you do?
2. Your analysis outcome does not support your initial problem hypothesis. Is this a
failure and wasted time and effort?
3. Compare consultants’ two basic forms of analysis: driver analysis
(decomposition) and benchmark analysis (comparison). When would you use
which form?
9 DEVELOPING A SOLUTION
INTRODUCTION
This chapter outlines the next step of the Structured Problem-Solving method of the
world’s leading consultancies. This step is developing a solution. First, we revisit
Coleman’s bathtub: after decomposition, we need composition, combining the
components that together form a solution. In the second part, we interpret a solution
as a structure of components. Third, we outline how consultants develop solution
options. In the fourth section, we provide some frameworks for solutions. Fifth, we
discuss an indirect process for solution development. The sixth part is about
developing a solution hypothesis. Seventh, we explain a hypothesis test and in the
eighth part, we discuss the decision to accept or reject a solution. Ninth, we show
how to evaluate solutions and select the best. The chapter ends with a conclusion, a
running case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the reasons for the Sequential Analysis approach to solution
development
Understand the components of an operational solution
Understand the components of a strategic solution
Understand the origins of options
Understand the sequential synthesis approach
Develop possible solutions
Use a morphological box
Formulate a solution hypothesis
Test a solution hypothesis
Evaluate supported solutions.
MULTI-LEVEL SOLUTION DEVELOPMENT
Composing
Consultants decompose key questions into issues and develop and test hypotheses
about these issues. The accepted hypotheses are answers to the issues, but the
client needs answers to their key questions. Therefore, consultants need to translate
the answers to these low-level sub-questions into a single answer to the high-level
key question. Again, we use Coleman’s Bathtub for visualization of the process
(Figure 9.1). After decomposition for problem analysis (the left-hand side of the
figure), solution development requires composition (the right-hand side). While the
decomposition or breakdown is about descending into the bathtub, the composition or
synthesis is equivalent to climbing out of the bathtub.
Figure 9.1 Climbing Coleman’s bathtub
GOOD SOLUTIONS
We focus on two critical characteristics of good solutions: completeness and
consistency
You may ask: What constitutes good solutions? Consultants formulate clients’
problems as key questions. Good solutions answer these questions. They meet
clients’ criteria and fit their solution constraints. Good solutions must be clientspecific: they are tailor-made to clients’ unique situations. Another question arises:
What do good solutions look like? We focus on two critical characteristics of good
solutions: completeness and consistency. Consultants decompose complex problems
p
y
p
p
p
into MECE structures of issues (mutually exclusive and collectively exhaustive).
Similarly, consultants compose solutions as MECE structures of parts or components.
These parts are choices. Solutions are about clients’ choices. For example, solutions
to strategic problems require clients to make choices about where to play (markets),
how to win (customer value propositions), how to create the customer value
propositions (value creation model), and how to make money with providing value to
customers (value capture model). A later section will elaborate on solution
compositions.
These choices must not only be MECE but also consistent. Consistency is about the
harmony of components to one another. All choices within a solution should perform
similarly, namely contribute to solving the client’s focal problem and closing the
performance gap. Good choices are not only compatible but reinforce each other. For
example, a client’s value creation model choice reinforces their value capture model
choice. Solutions are configuration of choices. Consistency of component choices is
a vital characteristic of good solutions.
But there are other forms of consistency that determine the quality of solutions, as
Figure 9.2 shows. Solutions must be consistent with the problem analyses, that is,
the performance gaps, problem segments, and explanations. Furthermore, solutions
must be consistent with the client’s internal organization because the solutions must
suit the client. The solutions must also fit the external environment of the client. For
example, solutions must anticipate the behaviour of competitors and customers.
Finally, good solutions are feasible. Admittedly, there is some overlap between
feasibility and these other forms of consistency, but with this classification certainly no
aspect is left unexplained.
Figure 9.2 The consistency of a solution
CONSULTANTS’ MODELS FOR DEVELOPING
SOLUTIONS
Four models for developing solutions
We add design thinking to the three models that we introduced in Chapter 7. Since its
main contribution is in the solution development steps, we have not discussed design
thinking until this chapter on solutions. Figure 9.3 compares the four models.
Figure 9.3 A comparison of four models for developing solutions
Answer-First Problem-Solving
You may ask: How do consultants generate probable answers or possible solutions?
As with problem analysis, there are different approaches to solution development.
First, if problems are familiar to consultants, then they may already have possible
solutions. If consultants have prior knowledge of problems and solutions, they can
use the Answer-First approach. They start projects with probable answers to the key
questions. These are hypotheses about possible solutions.
Structured Problem-Solving
This model suits consultants who have no or little knowledge of possible solutions, or
(for whatever reason) do not want to begin projects with a focus on specific solutions.
But they do know how to structure problems, which allows them to develop issue
trees. The consultants decompose key questions into hierarchies of sub-questions
with the most straightforward sub-questions or issues at the bottom of the tree.
Answering these issues requires analysis. With the answers to these issues,
consultants can develop answers to the key question. Consultants combine the issue
answers into a solution to the problem. We call this combinatory process composition
or synthesis.
Sequential Analysis Problem-Solving
There may be situations where consultants do not have experience with their client’s
problem. If problems are not familiar to the consultants, they can resort to Sequential
Analysis. Figure 9.3 shows the Sequential Analysis process. We have now reached
the fourth step of that process. The question of this step is as follows: ‘What could we
do about it (the problem)?’ or ‘What are the possible solutions?’. The solution is an
answer to the key question. In steps 3 and 4 of Sequential Analysis, we use
hypotheses about, respectively, possible problem explanations and possible solutions
to these problems. Developing and testing these hypotheses provide consultants with
opportunities for learning and improvement (see the two loops in steps 3 and 4 of
Figure 9.3).
Design thinking
Design thinking comes from the world of product design. Figure 9.3 shows the
author’s interpretation of the Five Stage Design Thinking Model of the Hasso Plattner
Institute of Design at Stanford University. The design and consultancy company IDEO
has brought this model mainstream. It is a human-centric approach to product
development whereby designers and users collaborate. The starting point is an
empathic understanding of the human needs regarding products. Design thinkers
define the problem (with products) in human-centric ways. It is a practical approach
because product ideas are worked out directly into prototypes that are presented to
potential users for test use. Design thinking has important similarities with the other
models. Prototypes can be regarded as a form of materialized solution hypotheses.
Prototyping and testing make design thinking an iterative process like the other
models. The collaboration with users is an example of stakeholder engagement that
the other models use. Design thinking’s scope is limited to products, while the other
models can address a wider range of business issues.
Developing possible solutions
In Figure 9.4 we zoom in on the process steps for developing a solution according to
the Sequential Analysis model. We distinguish between three alternative approaches
to develop possible solutions:
Identify an analogical case
Ask knowledgeable stakeholders and other experts
Identify a relevant framework.
In Chapter 8 we already discussed these techniques for developing possible
explanations for the problem. In a similar way we can use the three approaches for
developing possible solutions.
Figure 9.4 Sequential Analysis process steps for developing a solution
Direct and indirect processes for developing possible solutions
Developing possible solutions can be challenging for consultants, especially if they
have little or no experience with the focal problems. Therefore, we distinguish
between two different processes for solution development: the direct and the indirect
process. Figure 9.5 presents these two processes.
Figure 9.5 Direct and indirect processes for developing possible solutions
A direct process
A direct process is suitable for experienced consultants. They know about or can find
analogical cases for their clients’ problems. Experienced consultants also know how
to develop solutions using stakeholder insights. They know how to synthesize these
insights into solutions for their clients’ problems. This book focuses on inexperienced
readers who do not have access to knowledge management systems with analogical
cases. Moreover, the (often implicit) synthesizing of insights is not feasible for these
readers as they lack experience. Therefore, we also present an indirect process.
An indirect process
If clients’ problems are complicated, solutions often consist of various parts or
components. We speak of composite solutions. Clients should take several actions to
solve their problems and these actions should complement and preferably reinforce
each other. These actions can only solve problems together. Take the example of a
loss-making company. The consultants advise the client to take the following actions:
stop loss-making products
move production to a low-wage country
set up a digital sales channel.
These are three parts of a recommended solution. Each part is a partial solution.
Developing a coordinated and consistent set of partial solutions can be a major
challenge, especially for inexperienced consultants. Instead of developing the set of
partial solutions in one go or directly, consultants may also take a two-step or indirect
approach.
1. Consultants create options for the individual parts of a solution. They consider
the options at the part level. Consultants ask themselves: What are the possible
choices for each part? What are the buttons that the client can push to solve the
problem? Consultants may have to ask the client what decisions the client can
make to solve the problem.
2. Consultants create consistent and reinforcing combinations of the solution parts.
They ask themselves: What possible choice for part B fits with and reinforces a
particular option for part A?
An example
To make the indirect approach concrete, we use the metaphor of a dinner. Let’s
assume that you visit a restaurant and want to compose a menu consisting of a
starter, a main dish, and a dessert.
1. You look at the options for the three courses on the menu.
1. For the starter, you consider chicken soup, shrimp cocktail, and salad.
2. For the main dish you distinguish between veal, chicken, fish, and
vegetarian.
3. For the dessert you consider the following options: ice cream, fruit salad,
and cheese.
2. You combine the three courses to create a complete dinner.
1. You begin with the starter. You choose the shrimp cocktail.
2. Now you consider a main dish to go with the shrimp cocktail. You decide that
fish matches your selected starter.
3. Finally, you select a desert. You decide for the ice cream as it would fit well
with the chosen starter and main dish.
FRAMEWORKS FOR SOLUTIONS
Framework parts and partial solutions
Consultants decompose a client’s key question as a structure of sub-questions.
Similarly, consultants frame the answer to that question as a hierarchy of subanswers. Like the problem, consultants treat the solution as a structure of parts.
These components need to be mutually exclusive and collectively exhaustive
(MECE). But MECE is not enough for these compound solutions. The pieces must
complement and reinforce each other for an effective solution. Before consultants can
compose a complete solution, they need options for the composing parts.
Therefore, consultants search for complementary and reinforcing values of these
components. So far, we have only talked about problems. As mentioned before,
clients also hire consultants for advice on opportunities. What we say about solutions
to problems also applies to opportunities.
Operational problems
As already discussed in Chapter 6, not all problems are alike. We distinguish
between strategic problems and operational ones. The main difference between the
two classes of problems is the scope of the problem. Operational challenges have a
narrower range than strategic problems. Take, for example, the operational difficulty
of the quality of a manufacturing company’s product varying too much. This
operational problem may lie within one business function of that company. In this
example, it can be the manufacturing process. But the problem causes may also be
outside that function. For example, the reason may be an inferior product design.
Product design is the responsibility of the research and development (R&D) function.
But in general, the causes of operational problems are limited to one or maximally a
few business functions. In the case of operational problems, the client company does
not perform one or more functions well enough. The efficiency and/or effectiveness of
these functions are inadequate.
Strategic problems
In contrast, strategic problems have a (significantly) broad scope that spans many or
all company functions. An example of a strategic situation is a company that loses
market share to competitors because of a competitive disadvantage. The causes of
that competitive disadvantage are spread across the various business functions of
the company. The problem causes are not limited to a lack of efficiency and/or
effectiveness of one specific business function. The problem is much more
fundamental. The company may engage in value-adding activities that cannot provide
value to that company. The reasons for the lack of value generation can be twofold:
The company’s value-adding activities are by nature not valuable. For example,
the company operates in a market or market segment without profit potential for
the players in that area. Nobody can make money in this market.
The company cannot be successful in a market or segment. The market itself
may have profit potential, but the company lacks the competencies to realize the
potential. As a result, the company cannot compete.
The causes of strategic problems are much broader and deeper than those of
operational issues. Therefore, the components of solutions to strategic challenges
are much more comprehensive and profound.
In this book we focus on two frameworks for solutions. One framework is for answers
to operational problems, and the other is for solutions to strategic challenges. We are
not saying that all solutions must have these structures. There are alternative
frameworks. Consultants choose the frameworks that best suit their clients’ problems
and/or opportunities. Having a general form as a starting point can help design a
custom structure to fit the specific problem’s particularities.
Frameworks
Frameworks are about existing solutions. They are based on empirical research of
practice and generalized insights. Therefore, frameworks are generic knowledge.
However, generic solutions need translation to the specific situation of a client.
Please remember that every client’s situation is unique, or at least clients believe that.
In Figure 7.17 we provided some examples of popular frameworks. There are many
more frameworks. Look in the literature or search the Internet and you will easily find
many more examples.
A framework for operational solutions
Operational solutions improve the efficiency and/or effectiveness of a business
function. Consultants think in terms of decisions or choices that clients can make to
solve their problems. What decisions can clients make in the event of operational
problems? What are the buttons that clients can turn to make business functions
more efficient and/or effective? We recognize that there are many buttons. The more
you go into detail, the larger the number of buttons becomes. To keep it simple, let us
start at a high level of abstraction. Figure 9.6 provides the author’s interpretation of
the Congruence Model of Nadler and Tushman (1980) for diagnosing organizational
behaviour. This is just one example of suitable frameworks. There are alternatives.
Figure 9.6 A framework for operational solutions
A systems approach
The four parts of this framework for operational solutions are interdependent. A
complete solution is a system of four components. These components should
reinforce each other. For example, a culture of ‘customer first’ can strengthen a
client’s sales capability. Consultants follow a systems approach. They consider the
relations between the components to make sure that these elements reinforce each
other. We will briefly explain the four parts of a solution to an operational problem.
According to this framework, compound solutions to operational problems consist of
the following four parts:
Processes: Processes are what companies do: their value-adding activities.
Examples are the administrative process, the procurement process, and the
sales process. Porter’s value chain is an excellent framework of the primary and
secondary value-adding activities or processes.
Structure and systems: The organizational structure and systems are the
company’s hard levers for organizing people and processes. The most critical
systems are about measuring (information systems) and compensation (human
resources systems). The saying is: What gets measured gets done.
Resources and capabilities: Resources are what companies have available.
Examples of resources are the company’s people (human resources), the
knowledge (intellectual property), and the equipment. There are also other
resources such as the customer base, the brands, and a business partners’
network (business ecosystem). Resources underlie the capabilities. Capabilities
are what companies can do with their resources, such as product development,
production, and marketing. Capabilities underlie the company’s processes.
Companies are capable to perform processes.
Culture: Culture is the soft lever for structuring the company and encompasses
their people’s shared values, norms, beliefs, and behaviour. ‘This is how we do
things in this company’’ Culture goes hand in hand with the company’s traditions
and their people are used to it. Newcomers need to learn the culture and
conform to it. Because the values, norms, and beliefs are self-evident and takenfor-granted for everyone inside that company and because it concerns
automatic, unconscious behaviour, a culture cannot easily be changed. Culture is
called soft, but it is hard to change.
Sub-components and choices
Consultants can decompose a solution component into a logical structure of subcomponents. Each element and sub-element of a solution represents a choice for
clients. These elements are variables which means that they can take on different
values. Consultants should find the values that contribute most to solving their client’s
problem. Figure 9.7 provides an example of the decomposition of the process
component of an operational solution.
Figure 9.7 A decomposition of a partial solution to an operational problem
Consultants can decompose the process into four sub-components:
The scale of the process is about the capacity of the process. At what scale does
the client want to run the operation? Of course, this is only relevant when there
are economies of scale.
The position of the process refers to the company’s boundaries. By position, we
mean whether the process is positioned inside or outside the client company’s
boundaries. The client may integrate the process into its own operations or
outsource it to an external services provider. The question is: What option will
contribute most to the client’s solution?
The design of the process is about the number and type of steps in that process.
What is the best process design to solve the client’s problem? For example,
should the process be as lean as possible, or should the design allow for agility?
The technology used in the process generally refers to automation. What
technology should the client use in this process to solve the problem? Should the
production process remain traditional, or would it be better to automate the
process? How far should the automation be implemented?
Consultants make recommendations for the values of each component. For example,
they may advise digitalizing a client’s process. Whereas consultants make
recommendations, clients make decisions. Clients accept or reject the consultants’
recommendations.
Whereas consultants make recommendations, clients make decisions
A framework for strategic solutions
Strategic solutions improve the long-term profit and any other overarching objectives
of the whole company. As an example of a strategic framework we choose the
Strategy Diamond model of Hambrick and Fredrickson (2005). We leave out the
staging element about speed and sequencing because we do not see timing as
separate from the other choices but as an aspect of each choice. Moreover, we add
elements of the Value-based Strategy framework of Brandenburger and Stuart
(1996). This example shows that you do not have to select a standard framework
from the literature but that you can also create a custom framework. If you build your
own framework you must make sure that the structure of parts is MECE: mutually
exclusive and collectively exhaustive. Figure 9.8 presents our solution framework.
The look of the figure is very similar to Figure 9.6, but the four components are
different.
Figure 9.8 A framework for strategic solutions
Let’s briefly introduce the four strategic components:
An ‘arena’ is the market where the focal company operates. We can define the
arena in terms of products and customers. The arena answers the strategic
question: Where to play?
A ‘value proposition’ refers to the value that the company promises to their
customers. It answers the question: How to win? Company and competitor
compete for the favour of customers. Both company and competitor offer
customer value propositions. Which proposition does a customer choose?
Roughly speaking, a winning customer value proposition can take two forms
according to Michael Porter. Either it means that the company promises the
cheapest product (cost leadership strategy) or offers better value for its money
(differentiation strategy). Companies can also have value propositions for other
stakeholders besides customers. For example, companies may have value
propositions for employees (how to win talent?), shareholders (how to win
monetary funds?), and the general public (how to win a social license to
operate?).
A value creation model underlies the value proposition which is a promise to the
customer that the company must keep. Creating value for the customer is about
the company’s operations. We decompose a value creation model into four subcomponents: processes, resources and capabilities, structure and systems, and
culture. These four parts correspond to the operational solution, which is no
coincidence as the value creation model is about operations.
A value capture model refers to how companies make money, although we
acknowledge social and environmental objectives (people and planet). We
distinguish between value capture and value creation. For example, a car
company can create value for customers but not capture a part of the value.
Imagine the situation that the customers love the car. The company does not
make money on its cars because the selling price is too low and/or the costs are
too high. Can you capture value without creating value? That is possible, but
then you are talking about unethical or even illegal practices. That is beyond the
scope of this book. Value capture is the business model or earnings model: how
to make money with the product or service? It is an essential component of the
solution.
AN INDIRECT PROCESS FOR DEVELOPING
SOLUTIONS
Here we discuss an indirect process for developing operational solutions (see Figure
9.9). Figure 9.9 presents an indirect process for developing operational solutions. In
the next sections we outline the two steps: first developing partial solutions and then
creating consistent combinations.
Figure 9.9 An indirect process for developing an operational solution
Developing partial solutions for the framework parts
The consultants have selected a suitable framework for the solution. The question
arises: where can the consultants find options for the solution parts or partial
solutions? What are the possible origins of options? Besides frameworks, consultants
can consider two other sources of options for partial solutions:
analogical cases
knowledgeable stakeholders and other experts
Analogical cases
Analogical cases can inspire solution development as clients may learn from best
practice companies in the same sector or a different one. Such benchmarking of best
practices fits consultants well. They solve problems as a profession and encounter so
many situations that they have an excellent knowledge of analogical issues. The
larger the consultancy firm, the more client problems they have solved. Consultants
can draw on a reservoir of prior knowledge about problems and solutions gained in
previous projects. They are in an excellent position to broker their expertise in other
client organizations and sectors.
Action point
Always check first whether your consultancy firm has solved these kinds of problems
before. Do not reinvent the wheel.
Catching up with best practices
Consultants may already have a complete idea of the solution as a consistent
configuration of mutually reinforcing components. They know that this solution works
for other clients or sectors. It is a proven successful solution that carries a low risk.
When the client implements such an existing solution, it imitates another company.
Imitation can be effective if the other company is more successful than the client: the
best practice. The client can then catch up with the more successful company. This
seems like an easy way to create solutions, but appearances can be deceiving. A big
pitfall is to overlook critical differences between the client and the best practice
company which means comparing apples with oranges.
Action point
Take a critical look at whether the supposedly analogical case is indeed identical to
the client’s situation.
Not copying, but customization
In practice, the current consultancy project will not be a complete copy of previous
projects. Every client and every problem have unique aspects. Clients will reject any
standard solutions off the shelf and argue that their problem is unique. That is why
consultants will have to tailor their solutions to the new clients’ specific problems.
Though complete recycling of solutions rarely works, working with existing solutions
has excellent advantages for consultants. It makes a big difference whether
consultants must develop solutions from scratch or build on available solutions. As
noted earlier, the ethics of brokering existing solutions is a tricky issue. Consultants
will need to ensure that a client’s confidential or otherwise sensitive knowledge does
not reach a rival client.
Engaging stakeholders
Understanding problems is a necessary condition for developing solutions. But
solutions do not automatically flow from understanding the problems. Answers to
clients’ key questions may require creativity if there are no existing solutions
(analogical cases). Creating many new and original ideas contributes to solution
development. Creative thinking to develop new solutions is a more ambitious strategy
for consultants than brokering existing solutions across companies or sectors.
Whereas implementing existing solutions is about catching up of clients with current
best practices, creativity can lead to new best approaches.
Creative thinking
Creativity benefits from a diversity of perspectives. Such diversity helps to stimulate
divergent thinking. Engaging knowledgeable stakeholders and other experts in the
creative process will contribute to the quality of ideas. Consultants may, therefore,
engage a diverse range of stakeholders in creative thinking sessions or workshops.
Consultants should tap into the brains of a diverse group of client managers and
professionals. Certainly, in cases where clients’ employees do not or insufficiently
communicate with each other, consultants can create value by talking to all these
actors and combining their insights. The clients’ employees can be locked in silos and
therefore have little or no knowledge of other relevant business functions, causing
them to miss the crucial overview. Consultants can collect the different perspectives
through interviews with these stakeholders and they can also bring the different
actors together through workshops to create a complete overall picture of how
solutions may look.
Additionally, people outside the client’s organization can bring a fresh outsider
perspective on solutions. Ideally, consultants engage independent people who are
free to speak up their minds. Consultants can use many techniques for stimulating
creativity (see Figure 9.10 for some examples).
Figure 9.10 Examples of creative problem-solving techniques
Action point
Do not develop your solutions in your office behind your desk but cooperate with
knowledgeable stakeholders and other experts.
Example of operational solution
Let us illustrate the sequential synthesis process with the example of the fictitious
medical technology company X. The previous chapters revealed that X’s production
plant Q has an operational problem: Q’s production costs exceed the plant’s
objective. Previously, the consultants developed three hypotheses for explaining the
plant’s production cost gap. The analyses supported all propositions, but the impacts
of scale disadvantage and capacity underutilization explain only the minority of the
cost gap. The most important explanation is the plant’s inefficiency unrelated to scale.
Therefore, the key question is: How should X respond to plant Q’s inefficiency in
order to close its production cost gap? Assuming that the most critical component of
X’s operational solution is the process, the consultants start with that component.
Process options
For the component process, the consultants can generate four sub-components and
their associated choices. For the sake of clarity of Figure 9.11, we limit ourselves to
only one sub-component of the process, namely the design of the process. We
recognize that more options are possible for this sub-part. Still, the consultants limit
themselves to the most critical options in their view. Please note that the options
should be mutually exclusive: they should be real choices. But the structuring of the
options does not have to be collectively exhaustive. Consultants and clients are not
interested in purely theoretical alternatives. After identifying the process options, the
consultants search matching values for the following component: resources and
capabilities. Then they seek suitable choices for the structure and systems
component. Finally, the consultants identify matching options for the culture. Figure
9.11 shows only two options per part to make the picture clear and understandable. In
real life, consultants will create more options. Moreover, the number of options per
component may vary.
Figure 9.11 Combine partial solutions into a consistent operational solution
Creating consistent combinations of the partial
solutions
The consultants have completed the first step of the indirect process, creating options
for a solution’s individual components. They have used the various sources of origins
to find alternatives for each of the operational solution parts. The second process
step is to combine elements into a consistent and reinforcing combination. It can be
challenging to make a combination of options in one go. If the number of components
is limited, consultants can draw a decision tree. With a growing number of solution
parts, the number of branches of the tree increases. Consultants soon lose the
overview or run out of space left to present all branches in a picture. Consultants may
use morphological analysis for the combination of large numbers of components.
Morphological analysis
Morphological analysis is a technique for creative problem-solving. This technique
helps to develop creative solutions by examining the possible combinations. Here we
look at the combinatory process. This process can help consultants develop
combined or composite solutions.
Simply put, morphological analysis is a sequential assessment of the consistency of
combinations of components. The consultants begin with just two pieces: the process
component and the component of the resources and competencies. The consultants
form a pair of two matching values for these components. In Figure 9.11, these
options are in black-lined boxes. Then the consultants add to this pair a suitable
value for a third part: the element of the structure and systems. Next, the consultants
choose an appropriate value of the fourth piece: the culture component. Now the
consultants have a combination of consistent values for the four elements of an
operational solution: the four options in black-lined boxes.
You may ask: In what order do consultants combine the component choices? Which
component do they start with, and how do they choose the next part? The answer is
consultants select a logical sequence. If a client’s flexibility differs by component,
consultants start with the most constrained and least flexible part. Subsequently, they
add components where the client has more room and flexibility.
Example of strategic solution
Company X also has a strategic problem. The company’s strategic key question is:
How should X respond to its competitiveness problem in ‘other hospitals’ to close the
operating profit gap? Figure 9.12 visualizes an indirect process for developing a
strategic solution.
Figure 9.12 An indirect process for developing a strategic solution
Besides frameworks, consultants can consider two other sources of options for the
parts of strategic solutions: analogical cases and inputs from knowledgeable
stakeholders and other experts. For combining component options into a consistent
strategic solution, consultants can use a morphological box (see Figure 9.13). Let us
assume that in the example of X the most critical component of a strategic solution is
the arena. X’s problem is concentrated in the customer segment of ‘other hospitals’.
Therefore, consultants start with the options for the arena component of the strategic
solution. The consultants recognize that many options are possible for the arena.
Still, they limit themselves to the most important alternatives. The options should be
mutually exclusive, but the options’ structure does not have to be collectively
exhaustive. Consultants will not list options that only have theoretical relevance. After
the consultants have chosen an arena option (the option in a black-lined box in
Figure 9.13), they select a matching option for the value proposition. Subsequently,
the consultants identify a matching option for the value creation model. Finally, they
identify a matching option for the value capture model. Together the four options
constitute a complete and consistent strategic solution.
Figure 9.13 Combine partial solutions into a consistent strategic solution
Action point
Do not stop immediately after the first solution you find but look further. However, do
not develop a laundry list of all possible solutions either.
DEVELOPING SOLUTION HYPOTHESES
Developing a set of possible solutions
In the manner described before, consultants may develop several possible solutions
to their clients’ problems. Consultants never stop after the first possible solution but
always look for alternatives. The first solution does not have to be the best. When
consultants only present one possible solution, critical clients will ask which
alternative options they have considered. If the consultants then must admit that they
have not looked beyond the first solution, they are not making a good impression on
the client. Also, some client managers do not accept a single solution. They have an
urge to choose from a range of options. Options give these clients a feeling that they
are in charge. Then consultants must develop several possible solutions to meet their
client’s needs.
Developing hypotheses
The possible solutions that consultants have developed are just ideas. They have not
been tested. The saying is: The real proof of the pudding is in the eating, and,
therefore, implementation is the real test of solutions. But before clients decide to
implement solutions, they want to have confidence in the feasibility and effectiveness
of the solutions. Therefore, consultants test their possible solutions before they
present them to their clients.
Evaluation and selection
Testing solution hypotheses takes time and effort. Therefore, consultants will most
times be unable to test all possible solutions. Then they evaluate all possible
solutions and select the most promising solutions. Consultants will use their clients’
evaluation criteria to choose the best solutions as their hypotheses. A generic
solution hypothesis looks like this: This solution will close the profit gap. Having
formulated the solution hypotheses, the consultants will test them.
Example
We illustrate a solution proposition with the example of company X. Based on Figure
9.13, we formulate a hypothesis for X’s strategic problem: by staying in the other
hospitals with the lowest cost value proposition for a basic product from a dedicated
production line, X increases its sales volume so much that it will close its profit gap
despite smaller margins. This formulation is complete, but due to its level of detail
also a bit long. Consultants solve this by giving the solution a short but appealing
label. The consultants could call this possible solution the ‘back-to-basics’ strategy.
But other names are acceptable, as long as they are clear and distinct from the other
solution options.
Consultancy versus scientific hypotheses
The solution hypotheses of consultants differ from scientific hypotheses. Typically,
scientific propositions are explanatory. They explain existing phenomena like the
consultants’ problem hypotheses (possible answers to the question: Why does the
problem exist?).
However, the solution hypotheses of consultants are prescriptive. Consultants
prescribe solutions and predict that these recommendations will close the clients’
performance gaps. Solutions and performance are not facts that consultants can
verify at the time of the project. Only after the implementation of the solution can
consultants measure changes of the client’s performance. Therefore, prescriptive
solution hypotheses are much more ambitious than explanatory hypotheses.
TESTING SOLUTION HYPOTHESES
Critical thinking
Testing prescriptive solution hypotheses is much more complicated than testing
explanatory problem hypotheses. You may wonder: How do consultants test
prescriptive hypotheses? Again, consultants use decomposition to simplify the task.
They decompose the hypothesis into sub-hypotheses or assumptions. Consultants
ask themselves: What do we need to know or believe for accepting this solution? Or
formulated differently: What are the assumptions or premises of the hypothesized
solution? Instead of hypotheses, consultants test the underlying assumptions.
Identifying the underlying assumptions is sometimes tricky. Some beliefs are hidden
and so people are not aware of them. Identifying and testing assumptions requires
critical thinking. We illustrate the decomposition process with the ‘back-to-basics’
hypothesis of X. Figure 9.14 presents four assumptions that correspond to the four
components of a strategic solution: arena, value proposition, value creation model,
and value capture model. Consultants can decompose each of the four assumptions
into sub-assumptions. But we only break down one assumption to keep Figure 9.14
clear. In a real-world setting, consultants further decompose assumptions until they
reach a level at which they can test the assumptions relatively quickly.
Figure 9.14 A decomposition of a solution hypothesis into assumptions
Planning the work
Consultancy managers delegate the testing of solution hypothesis assumptions to
consultants. As with the problem hypothesis, managers begin with the question: What
is enough proof for the client and any other essential stakeholders to accept this
assumption? Then managers design analyses that can provide the desired evidence.
The design points to the required data. Managers identify the sources where these
data can be obtained. Finally, managers select the most appropriate way to collect
this data. We illustrate the work planning process with one assumption of Figure 9.14:
‘The competition has no answer to the lowest cost value proposition based on a basic
product’. Consultants break down that assumption into three sub-assumptions. Figure
9.15 presents a work plan for testing these sub-assumptions.
Figure 9.15 A work plan for testing sub-assumptions of a solution hypothesis
Action point
Keep your client informed of the possible solutions. Avoid unpleasant surprises during
the final presentation of your recommendations.
ACCEPTING OR REJECTING SOLUTIONS
Creating data
In contrast to problem hypotheses, much of the data for testing solution hypotheses
will not be available. Solutions are promises for performance improvement in the
future. After implementation, solutions are expected to improve the client’s
performance. But there are no facts about the future available. Consultants cannot
collect all the data they need for their analyses of the assumptions of their solution
hypotheses. Therefore, consultants must resort to creating data instead of collecting
data. Consultants may use simulation, experimentation, and estimation for creating
the necessary data (see Chapter 8). Estimates are based on assumptions. So,
consultants make assumptions to develop estimations to test the assumptions of
solution hypotheses. This may seem weird. But when testing solution hypotheses,
consultants cannot avoid making assumptions. It is about making assumptions that
are as concrete as possible. The more concrete the assumptions are, the easier
consultants, clients, and other relevant stakeholders can judge them. Therefore,
consultants decompose the abstract assumptions into increasingly concrete ones.
Assessing assumptions
Consultants, clients, and any other relevant stakeholders must be able to evaluate
the lowest-level assumptions of solution hypotheses. It is about whether the
consultants and their clients, and any key stakeholders consider these assumptions
valid. Testing solution hypotheses basically involves assessing the underlying
assumptions at the lowest level of decomposition.
Consultants may develop financial models of their hypothesized solutions to test how
robust these solutions are under uncertainty. They can do sensitivity analyses which
are about changing the values of uncertain input variables of the model to explore
any effects on output variables like clients’ revenues and costs. An example of input
variables at company level is the success rate of clients’ R&D projects. An industrylevel example is changes of competitors’ prices in response to clients’ solutions.
Interest rates are an example of macro-environmental level variables. Consultants
may also develop scenarios to test how solutions perform in various plausible futures.
Assumption testing is about the judgement of those involved: consultants, clients, and
any key stakeholders. If they have enough confidence in the validity of an
assumption, then they accept that assumption. Acceptance of all assumptions of a
solution hypothesis means acceptance of that hypothesis. This accepted hypothesis
then becomes a solution option for the client. Persuading stakeholders to accept
assumptions of hypothesized solutions can be challenging if the underlying
assumptions are very different from the unchallenged assumptions that these
stakeholders have long used and that have brought them success in the past.
Accepting and rejecting
One rejected assumption is enough to reject a solution hypothesis. Then consultants
need to develop another hypothesis. Consultants may already have alternative
candidate solutions ready. But in some cases, consultants can improve rejected
solutions. They may learn from rejections how to improve solutions. These improved
solutions may pass the tests. Acceptance of a single hypothesis does not mean that
consultants are done with solution development. Consultants always strive for
multiple solutions. They continue with hypothesis development and testing until they
have accepted a required number of alternative solutions. Iterations not only involve
rejections of hypotheses, but also arise from the requirement of multiple solutions.
The loop in Figure 9.4 visualizes the iteration.
Testing in practice
A way of dealing with the uncertainty surrounding hypothesized solutions is
experimentation to test these options. Consultants can test the assumptions of
solution hypotheses through interviews or surveys among knowledgeable
stakeholders. But the real test of solutions is their implementation in practice. With
the help of consultants, clients can implement several possible solutions at the same
time but as pilots on a small scale. In this way, clients test these solutions in practice.
Then consultants monitor the results of each small-scale implementation. If pilots of
specific solutions are successful, clients will increase the implementation scale. In
case of failures, clients end the pilots of these solutions.
SELECTING THE BEST SOLUTION
Performance contribution
Consultants develop multiple solutions, but clients can implement only one.
Therefore, consultants evaluate all solutions (accepted solution hypotheses) with the
clients’ evaluation criteria and select the best. The best option becomes the
recommendation or advice. An essential evaluation criterion is a solution’s
contribution to the client’s performance. Every solution must at a minimum close the
client’s performance gap, but some options may perform better than others.
Consultants estimate the performance increase of each possible solution. Figure 9.16
shows a waterfall chart of the estimated profit improvement of the ‘back-to-basics’
solution. The consultants distinguish between two different profit improvements. The
introduction of a basic model will increase X’s profit and the improvement of plant Q
will also contribute to profit. The combined profit improvement exceeds X’s profit
objective.
Figure 9.16 How a solution will close a performance gap
Action point
Always calculate the costs and benefits of your solution. Do not leave the calculation
to the client.
Evaluating the alternatives
If one option wins on all evaluation criteria of the client, consultants have a natural
winner. It is undeniably the best solution and the consultants’ advice is clear. It gets
trickier when there is no natural winner among the options. One option has the
highest score on one criterion, and the other option has the highest score on another
measure. Consultants can solve such dilemmas in two ways. One solution is to weigh
the criteria. Consultants do not look at the absolute scores per criterion but calculate
a weighted average for all criteria. If the client does not give an explicit weighting to
criteria, consultants can propose a weighting. The weights enable consultants to
make conditional recommendations. ‘If profit improvement is most important to you,
then option “Back-to-basics” is best. However, if you think the implementation efforts
are the most important, then option “Academic focus” would be better for you.’ Figure
9.17 presents an evaluation table with three possible solutions. The scores are on a
scale from 1 to 10. The sum of the weights is 1.
Figure 9.17 An evaluation of possible solutions
Decision making under uncertainty
Clients must decide whether to accept and implement the recommended solutions.
This is decision making under uncertainty about the future. The implementation of the
recommended resolutions will take place in the future. The recommended solutions
are based on assumptions. These assumptions were accepted, but they remain
assumptions. Assumptions imply uncertainty which complicates the clients’ decision
making. The decision to implement the recommended solutions remains a judgement
call of clients. Clients cannot be sure about the solutions, but they must have enough
confidence in these solutions. This confidence can create a self-fulfilling prophecy. If
clients have faith in specific solutions, they will do their best to make these solutions a
success. As discussed, consultants may support their clients’ decision making under
uncertainty by modelling how the various options perform under a range of conditions
or scenarios. These decision-support techniques, such as sensitivity analysis and
regret analysis, are beyond the scope of this book.
CONCLUSION
Clients do not need consultants for simple problems. Only when problems are
complicated, clients hire consultants. However, consultants simplify complex key
questions by decomposing them into their composing, more straightforward issues.
Compound problems (consisting of parts) require compound solutions (consisting of
parts). Therefore, consultants must combine the answers to the issues into an
answer to the key question. The development of solutions to complex problems
revolves around composition or combination of the solutions’ components. After the
analysis of the problem, the synthesis of the solution follows. Whereas MECE
(mutually exclusive and collectively exhaustive structure of parts) is enough for the
set of issues, the solution components must be mutually exclusive, complete, and
reinforce each other.
Running Case
COMBINING PARTIAL SOLUTIONS
The team of NoSlideshow has completed the problem analysis. The manager has
formulated the following key question: How should Keyboard respond to the
lossmaking customer segment C to close the operating profit gap? The consultants
use the operational solution structure of four parts (see Figure 9.6). The team follows
the indirect process for solution development (see Figure 9.9). To keep it short and
clear, we limit ourselves to one component, namely process. The consultants have
broken down the process part into sub-parts. Keyboard can make decisions about
each sub-part. To keep it short and clear, we limit ourselves to four sub-parts of the
process. The consultants use a morphological box to combine the choices of the four
process sub-parts. Figure 9.18 presents the morphological box.
Figure 9.18 Combine partial solutions into a consistent solution
TESTING A SOLUTION HYPOTHESIS
The consultants repeat the combinatory process for the other three components of
the solution. Then they combine the four components into a solution. The consultants
develop various possible solutions. They evaluate the possible solutions and select
the most promising ones. The most promising possible solutions become solution
hypotheses. The consultants test a solution hypothesis by testing its assumptions.
Figure 9.19 provides an example of an option named ‘A-Focus’. To keep the figure
simple and straightforward, we limit ourselves to the decomposition of only one first
level assumption.
Figure 9.19 A decomposition of a solution hypothesis into assumptions
SUMMARY
This chapter began with Coleman’s Bathtub model. After lowering the abstraction
level from the key question to the issues, consultants need to increase the level of
abstraction to answer the key question. After the decomposition of the problem,
consultants need composition of the issue answers to develop a solution to that
problem.
The solution is a structure of components. It is a compound solution. Consultants
may use frameworks to structure solutions. This book suggests a framework for
solutions to operational problems. This framework consists of four parts: processes,
resources and capabilities, structure and systems, and culture. We also suggest a
framework for solutions to strategic problems. This framework also contains four
components, namely: arena, value proposition, value creation model, and value
capture model. Figure 9.20 presents some examples of generic solution component
options for strategic problems.
Figure 9.20 Examples of generic solution component options for strategic problems
Notes: 1) if switch to a new basis of earnings (for example from product to
customer data); 2) distinguish between the different business functions
We distinguish between four different approaches to solution development. They are
a continuation of the approaches to problem analysis, namely:
Answer-First Problem-Solving
Structured Problem-Solving
Sequential Analysis Problem-Solving
Design Thinking
If the combination of solution components is complex, a sequential approach may
simplify the synthesis process. We discuss an indirect solution development process
of Sequential Analysis.
1. Identify the options at the level of individual components.
2. Combine component options with the use of a morphological box.
As testing all possible solutions is probably beyond a consultancy project’s scope,
consultants use their clients’ criteria to evaluate the possible solutions and select the
most promising ones as solution hypotheses. Consultants test these hypotheses by
testing their assumptions. For the test, consultancy managers design the analyses
and create work plans for consultants. Solutions are about the future, and there are
no data about the future. Therefore, consultants cannot avoid the use of (low-level)
assumptions when testing solution hypotheses. Because of these assumptions, there
remains uncertainty about solutions. Clients need to decide on the consultants’
recommended solution under uncertainty. We show how consultants can support
clients with decision making.
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Hasso Plattner Institute of Design at Stanford University (2010). An Introduction to
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QUESTIONS
1. A stakeholder, whom you suppose has a hidden agenda, comes with a possible
solution to the client’s problem. What do you do?
2. You have developed a sophisticated structure for the solution, but your manager
thinks it has too many parts to make it workable. What can you do about this
structure?
3. The client likes your proposed solution but doubts whether she can implement it.
How should you respond?
10 STRUCTURING A PRESENTATION
INTRODUCTION
This chapter outlines the structured presentation method of the world’s leading
management consultancy firms. Here we use the Pyramid Principle developed by
Barbara Minto (1987), which in consultancy is regarded as the gold standard of
structured communication. First, we discuss why presentations are so important in
management consultancy. The second section is about some common pitfalls in
presenting. Third, we put ourselves in the position of the audience. The fourth section
outlines how the world’s leading consultancies develop solution-driven presentation
structures. Fifth, we introduce the issue-driven structure as an alternative form for
special situations. Sixth, we elaborate on slide design. The chapter ends with a
conclusion, a running case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the importance and the role of presentations in consultancy projects
Understand the importance of knowing the audience’s interests and prior
knowledge
Know when to use an issue-driven presentation structure and when a solutiondriven structure
Know how to develop issue-driven and solution-driven structures
Know how to create a storyline
Know how to design a slide.
THE IMPORTANCE OF PRESENTATIONS IN
CONSULTANCY
Physical consultancy product
The outcome of a management consultancy project is a recommendation. Typically,
the advice is abstract. The details and underlying analyses are highly complex. A
team of brilliant people has worked for months on the solution. Consultancy may be
challenging to comprehend for the client. For people who have not been part of the
project or followed it, understanding the work may be even more difficult. That is why
consultants must do their best to explain their solution. Presentations play a critical
role in this. The PowerPoint slide presentation is one of the most essential
communication tools of consultants. But the explanation of the advice and the
underlying analyses is only one reason why consultants use presentations.
The PowerPoint slide presentation is one of the most essential communication tools
of consultants
Presentations at various project stages
Consultants use presentations at several stages of their projects.
At the beginning of projects, consultants present themselves and their plan of
action to the client and other stakeholders in the client organization. The goal of
these presentations is to inform these stakeholders about the project and to gain
their acceptance. Consultants can also motivate these stakeholders to cooperate
or otherwise support the consultants’ work.
At project milestones, consultants present their interim results to the steering
committee to keep them informed, solicit feedback, or obtain additional
information.
At the end of the project, consultants offer their advice to the client, the steering
committee, and other relevant stakeholders. The consultants persuade the client
to implement the recommendation. They convince the stakeholders to accept the
advice and support the implementation.
During the solution implementation, presentations also play a crucial role. The
following chapters will elaborate on that topic.
Presentations for various meetings
Consultants prepare presentations for their team meetings. During team meetings,
consultants present the results of their analyses, and managers outline the next
steps. Consultants also prepare presentations for steering committee meetings.
Steering committees usually consist of the consultancy partner and the decision
makers of the client organization. Consultancy managers present to the steering
committees at essential milestones of the projects. Steering committees assess the
work plans and the progress that the teams have made. Outside the regular meetings
with the steering committee, managers can still give one-on-one presentations to
individual members of the steering committee. Consultancy managers can use these
individual presentations and conversations to test their ideas or inform people in
advance to prepare for the next meeting of the steering committee. Managers can
decide to do so if their ideas or proposals deviate from what steering committee
members expect. In this case, managers want to avoid unpleasant surprises for the
members concerned. Managers use one-on-one presentations to inform and
convince these members of the value of the ideas or proposals. Figure 10.1 shows a
project’s timeline with the regular meetings at which consultants give presentations.
Figure 10.1 A project timeline with meetings
PITFALLS IN PRESENTATIONS
Assuming that the audience is as interested as yourself
For consultants, their projects are the most crucial things there are. They have been
working on it day and night for the past couple of months. They also know the
projects inside out. The analyses and advice are evident to them. But consultants
should not fall into the trap of presuming that clients and other audience members are
equally involved and equally knowledgeable about the projects. Clients and other
members of the audience often have very different problems on their minds. The
project is just one of the things competing for their time and attention. Consultants
should take that into account when preparing presentations. They should keep their
presentations short and straightforward.
Showing how much work you have done
But some (inexperienced) consultants may feel that they must prove their worth
during presentations. As discussed earlier, the added value of consultants cannot be
determined objectively. Consultants may face outspoken or unspoken criticism from
some clients and/or other stakeholders that their added value does not outweigh their
fees. That is why some consultants may feel the pressure to prove themselves during
presentations. Some people may want to show how smart they are and how much
work they have done. They then make presentations that are far too complicated and
take far too long. Such presentations will exhaust the audience. Members of the
audience will lose interest and give up. They get distracted and will stop paying
attention to the presentation.
Some people may want to show how smart they are and how much work they have
done
Talking too long
Consultants need to consider their audience’s span of attention. People can listen to
another person speaking for only so long. After that time, people become distracted,
and their focus on the speaker’s story drops off fast. It is always tricky to generalize,
but for the sake of convenience, allow 20 minutes. It does not have to be that the
presentation may last a maximum of 20 minutes. Still, after 20 minutes, consultants
alternate the talk with a break or, for example, a discussion. Based on the available
time and an average speaking time, consultants arrive at approximately 2,600 words.
Consultants then plan the number of PowerPoints that they can present in 20
minutes. A rule of thumb is to reserve two minutes per slide. But of course, it depends
on the content of the slide. Consultants do not put multiple messages on a slide and
avoid letters that are too small for the audience to read. Consultants limit themselves
to a relatively simple message per slide. In that case, they can safely present one or
two slides per minute. A quick change of slides can also keep the audience’s
attention in the presentation.
Action point
Always ask the client in advance how much time you have for a presentation. Avoid
nasty surprises.
UNDERSTANDING THE AUDIENCE
It goes without saying that consultants make sure they know to whom they will
present. Not only do they need to know who will attend the presentation, but they also
need to understand how these people relate to the project. This brings us back to the
stakeholder analysis. When consultants are going to present, they need to know what
kind of stakeholders are in the room. Consultants must map the stakeholders in the
audience. For example, consultants need to know whether there are stakeholders
with significant power over the project. Consultants need to learn how the interests of
these stakeholders relate to the client organization. Are their interests the same, or
are the interests conflicting? Consultants must also know how acute the problem and
the recommended solution are to the audience members. Will these people find the
advice controversial or embrace it? It is not just about the influence and interests of
the audience. Also essential is the audience’s knowledge of the project, the problem,
and possible solutions. The less prior knowledge the audience has, the more the
consultants must explain.
Consultants must map the stakeholders in the audience
Two different starting points
When presenting the recommendations at the end of the project, consultants
distinguish between two different starting positions.
The client and any present stakeholders know the problem. The consultants
have informed them earlier in the project about the outcome of the problem
analysis. This audience knows what the problem is, where it exists, and why it
exists. These people have a shared understanding of the problem. But they do
not know how to solve the problem. The relevant question for them is: How
should we solve the problem?
The stakeholders present do not know the problem. The consultants engage
relevant stakeholders in the problem-solving process. These stakeholders may
receive the information they need to have to contribute to the process: the
consultants inform them on a need-to-know basis. But these stakeholders may
lack an overview. They do not have the big picture of the problem-solving
process. Moreover, there are stakeholders in the audience who were not
involved in the problem-solving process. Therefore, some people in the audience
do not know the problem. They may have a flawed understanding of the
problem, or their interpretations may differ. Stakeholders may blame each other
for causing the trouble. Some people may deny the problem’s existence,
whereas others may even be unaware of the issue. For such an audience, the
relevant question is: Is there a problem?
Two different introductions
Each starting position demands a specific introduction. The introduction consists of
four parts: situation, complication, question, purpose. This structure is part of Barbara
Minto’s Pyramid Principle. The first part is the ‘situation’, which is a brief description
or profile of the client company. It must be recognizable because consultants do not
want any controversy over the opening lines of their presentation. Consultants want
their audience to agree with the first thing they say. They want to show that they know
who the client is and that they understand that company. The second topic is the
‘complication’, which goes to the heart of the consultancy project. It is the reason why
the client hired the consultants. From this point on, the structures for the two different
audiences diverge.
Consultants want their audience to agree with the first thing they say
For a knowledgeable audience, the complication is the known problem. The
consultants suffice with a brief description of that problem. Then they present the
third part of the introduction. This is the most critical question in the mind of this
audience. The consultants repeat the key question of the project: How should the
client respond to the problem? The final part of the introduction is the purpose of
the presentation. The consultants inform the audience that they will present their
recommended solution.
The consultants use a different introduction for an audience that is not (entirely)
informed about the problem. The complication for these people is their
uncertainty about the problem. Consultants mention this uncertainty. Then they
must make explicit the question that lives in the minds of this audience. This
question is as follows: Is there a problem, and if so, how do we solve it?
Consultants then clarify the purpose of their presentation. For this audience, the
goal is to present the problem analysis and, in case of a verified problem,
recommend a solution. Figure 10.2 displays the two starting positions and their
suitable introductions. For clarity, this figure is limited to problems, but it is also
applicable to opportunities.
Figure 10.2 Different introductions for different starting points
Action point
Make sure you know who is in the audience and what they know and want.
STRUCTURING THE PRESENTATION OF A
SOLUTION
Consultants can use the ‘Minto Pyramid Principle’ (see Chapter 7) for presenting their
recommendation in a structured way. This principle is decomposition of a main
message into a hierarchy of sub-messages that resembles a (two-dimensional)
pyramid. The main message is the recommended solution which is the consultants’
answer to the client’s key question. Depending on their clients’ needs, consultants
may decompose their messages into arguments (explanation of solutions) and
actions (implementation of solutions). First, clients want to know why this is the best
solution to their key question. They want arguments or explanations. Only when they
are convinced of the solution do they want to know how to implement this solution.
They want to learn about implementation actions.
Answering why questions
Consultants need to convince clients of the value of their solutions. They provide a
set of arguments to answer clients’ why questions: Why is this the best solution for
my problem? The set of arguments should be MECE: mutually exclusive and
collectively exhaustive.
The vertical relationship between the two levels in the top structure in Figure
10.3 is the why question: the lower level provides arguments for the higher-level
statement, which is the recommended solution: ‘B should enter online education.’
The organization of elements at the same level is about the horizontal
relationship. Consultants can present their arguments in a parallel way (the top
structure in Figure 10.3) or in a deductive way (the bottom structure).
Parallel means that there is no order or sequence of arguments.
Deductive argumentation follows a sequence from a general statement to
specific statements.
The example in Figure 10.3 uses the same arguments for the parallel and the
deductive structure. In practice, the arguments may differ. Figure 10.3 is limited to a
single level of arguments, but consultants can break these arguments into subarguments, thereby creating an additional level.
Figure 10.3 Presentation structures for answering why questions
Answering how questions
Clients who are convinced of the value of the solutions will develop a how question:
How should we implement the solution? Consultants will provide a set of actions for
implementation. The vertical relationship between the two levels in the top structure
in Figure 10.4 is the how question; the lower level indicates how the higher level
should be implemented: the implementation actions. The action set should be MECE.
Consultants can present their actions in functional groups (the top structure in Figure
10.3) or in a chronological order (the bottom structure). Functional and chronological
order are examples of horizontal relationships. Figure 10.4 shows only a single level
of actions, but consultants can break these actions into sub-actions (see Chapter 11).
Figure 10.4 Presentation structures for answering how questions
STRUCTURING A SOLUTION-DRIVEN
PRESENTATION
In the following text, we discuss the presentation of advice to a knowledgeable
audience. Here we assume that the consultants have regularly informed the audience
about their progress during the project. The purpose of this final presentation is to
convince the audience to accept the advice and implement it. Consultants take the
first starting position because the audience knows the problem.
The importance of a question
Clients and other stakeholders in the audience already have enough other things on
their minds
How do consultants convey the message to the client and the stakeholders present in
the audience? Consultants have powerful and valuable messages. Some people
assume that the audience is keen to hear their message and that the audience must
be on the edge of their seats to listen to what the presenters have to tell.
Unfortunately, the practice is often very different. Clients and other stakeholders in
the audience already have enough other things on their minds. Their heads are
already full of other problems and concerns. If consultants still want to impose their
messages there, they will encounter resistance. The audience will not be open and
will pay little or no attention to the consultants’ presentation. The members of the
audience are not interested in information as such. They are only interested in
information that answers questions they are struggling with. If these questions are
important to them and they cannot answer them themselves, then they are willing to
listen to the consultants’ answers. Therefore, the consultants’ messages must answer
substantial and challenging questions of clients and other stakeholders in the
audience. Questions are intended to make the audience interested in the consultants’
answers. For knowledgeable audiences, consultants use the project’s key question to
present their advice. After all, the key questions were the reasons for the projects.
Clients and stakeholders would very much like an answer to these questions.
Figure 10.5 shows the solution-driven structure for a knowledgeable audience. To
make the picture clear and understandable we have kept the structure very simple.
However, the structure can be expanded.
1. After the introduction and presenting the purpose of their presentation (see
Figure 10.5), consultants present the client’s evaluation criteria and solution
constraints as starting points for solution development.
2. Consultants present a methodological justification: how did they develop
solutions? They explain their method and data for developing solutions.
3. Consultants discuss the different possible solutions. They provide an overview of
the alternative options that they have developed.
4. Consultants present an evaluation of these options based on the client’s criteria
and constraints. The recommended solution emerges from this evaluation as the
best.
5. Consultants present the details of the recommended solution (see Figure 10.5).
Figure 10.5 An example of a solution-driven presentation structure for a
knowledgeable audience
Action point
Do not push your message but pull the audience with questions. Then answer these
questions with your message.
The introduction of the solution
Figure 10.5 visualizes the whole structure of the presentation. The case of the by now
familiar company X illustrates the presentation. You read this structure from top to
bottom. Consultants start with the introduction. They use the introduction structure
suitable to a knowledgeable audience (see Figure 10.2). Because these people
already know the problem, consultants do not have to spend any significant time on
it. They can move on to the solution fairly quickly. The focus of a presentation for a
knowledgeable audience is the solution. Therefore, we call it a solution-driven
presentation. The consultants present their recommendations, which are the best
solutions. What will the audience think first when consultants present their solutions?
Convincing the audience
The logical question of the audience is: Why would this solution solve the problem?
They will wonder why this advice is a solution to their problem. The logical question of
the audience is: Why would this solution solve the problem? This why question pops
up in their mind when consultants present their advice. Therefore, consultants need
to answer that why question. Consultants must provide arguments why their
recommended solutions will be the best solutions to the problems. The recommended
solutions are accepted solution hypotheses. Consultants tested these hypotheses by
assessing their assumptions. These assumptions are what people need to know or
believe for accepting these solutions. Consultants have analysed the assumptions
and shared their analytical findings with clients and relevant stakeholders. These
people have accepted these findings and thus the assumptions. Now consultants can
use the accepted outcomes of their analyses as arguments to support their
recommended solutions. The supported assumptions of solution hypotheses become
the arguments of the solutions. In this way, consultants convince the audience of the
value of the recommended solutions. Here it comes down to the persuasiveness of
consultants. How convincing are the consultants? How compelling is the presenting
partner of the consultancy firm? Consultancy partners not only sell projects but also
recommendations.
The argumentation structure
The argumentation structure of Figure 10.5 matches the format of assumptions of the
solution hypothesis in Figure 9.14. Figure 10.5 shows only the sub-arguments of one
argument to keep the picture clear. Consultants have sub-arguments ready for each
of the four arguments. If the available time is limited, consultants present only the first
level of statements. If there is more time and the audience asks for it, consultants
also offer a second or even a third level of arguments. Even if the presentation time is
limited, consultants should be prepared to answer questions about their reasoning
and provide lower levels of argumentation.
The next steps
After the audience has accepted the recommended solutions, they wonder how to
implement these recommendations. Consultants should anticipate that question and
prepare suggestions for implementation. This is the subject of the next chapter.
STRUCTURING A PROBLEM-DRIVEN
PRESENTATION
With an audience that does not know the problem
The client knows the key question, but some of the stakeholders in the audience may
not be familiar with that question or their interpretations of the problem may vary.
Consultants start their presentations with introductions that everybody recognizes.
Consultants begin their presentations at their audiences’ knowledge level. If
consultants start immediately with something unknown, the audiences will not
comprehend it. Then people in the audience will generally lose their attention.
Consultants, therefore, develop introductions that are familiar to all stakeholders
present in the audience.
Presentation structure
Figure 10.6 visualizes the whole structure of the presentation. Again, company X
illustrates the presentation. You also read this structure from top to bottom.
Consultants start with the introduction. They use the introduction structure suitable to
an audience that does not know the problem (see Figure 10.2). Because those
present do not identify the problem, consultants must spend significant time on the
problem. Consultants cannot move on to solutions quickly. If you introduce the
solution too soon, the audience will wonder about the problem that your solution is
supposed to solve. The focus of presentations for such audiences is the problem.
Therefore, consultants call it a problem-driven presentation.
If you introduce the solution too soon, the audience will wonder about the problem
that your solution is supposed to solve
Figure 10.6 An example of a problem-driven presentation structure for an audience
that lacks knowledge
The Sequential Analysis
The presentation structure mirrors the Sequential Analysis model. Recall the process
steps of the problem analysis: Is there a problem? Where is the problem? Why does
the problem exist? These are the questions that come to the audience’s mind in
succession.
Accepting the problem
Consultants start with the first question of this audience. Is there a problem? This
question is vital for people who are unaware of the problem or deny it. An adequate
answer to this question presents the negative performance gap: the client’s realized
performance is well below the objective. This is a factual and objective answer to the
question: facts do not lie.
Accepting the problem localization
After this convincing proof of the problem’s existence, the audience will wonder where
the problem is. Because the location of problems is a potentially sensitive topic,
consultants must again provide factual answers. They present the quantitative
distribution of the performance gap across the segments. The presentation of the
facts prevents endless discussions in which everyone defends their own truth.
Accepting the problem explanation
After the audience accepts the localization of the problems, consultants answer the
next question in the audience’s mind: What caused these problems? They are open
to explanations of the problems. The consultants’ answers are the supported problem
hypotheses. Consultants use the outcomes of their analyses of the supported
hypothesis assumptions as arguments of the problem causes. The more
comprehensive these analyses are, the more convincing the evidence is to the
audience.
Presenting the alternatives
After the audience accepts the explanations of the problems, they have sufficient
knowledge of the problems. Consultants can follow the argumentation structure of the
solution-driven presentation (Figure 10.5). But if the audience is critical, then
consultants can include the fourth step of the Sequential Analysis process. What are
the possible solutions? Consultants present an overview of the possible solutions.
These are the accepted solution hypotheses. By offering alternative solutions,
consultants show that they have orientated themselves broadly. Consultants then
share the client’s evaluation criteria for solutions. Subsequently, consultants use
these criteria to evaluate and compare the possible solutions. Based on this
evaluation, consultants present their recommended solution.
Accept the recommendation
The choice of a solution is the mandate of clients. Clients make decisions.
Consultants only make recommendations. To make things easier for clients,
consultants substantiate their recommendations as much as possible. Consultants
provide clients with arguments based as much as possible on factual analyses. Here
consultants can use the findings of their analyses of the hypothesis assumptions.
Entirely fact-based substantiations of recommended solutions are not possible.
Solutions are about the future and there are no facts about the future. Decisions,
therefore, are ultimately matters of judgement. In any case, consultants must provide
logical arguments and realistic assumptions for their recommendations to facilitate
the clients’ judgement and support the clients’ decision making.
Politics
Consultants hope that the audience is satisfied with their recommendations. But the
advice of the consultants may also count on resistance from (some) members of the
audience. As indicated earlier, the interests and values of stakeholders can differ. For
example, for environmental movements the sustainability aspects of solutions are
critical, while for works councils employment and the well-being of the workforce are
decisive. There will be stakeholders who prefer different solutions because every
possible solution can have advantages and disadvantages for specific stakeholders.
Some stakeholders favour one specific solution, and others want another option. The
choice of a solution is, therefore, also a political choice.
Clients as presenters
The political situation brings us to the question: Who should present the solution? So
far, we have assumed that consultants present, but that does not always have to be
the case. If messages are difficult for specific stakeholders to accept, presentations
may evoke resistance from these people. Clients can leave such difficult messages to
consultants. In such cases, consultants are the bogeymen and clients watch how
consultants answer the stakeholders’ critique. Then consultants become the bad
guys and clients can play the good guys.
Although consultants can provide good arguments for solutions, it is often better for
clients’ managers to present the solutions themselves. In this way clients’ managers
show that they are committed to the solutions and that they take responsibility for the
implementation. Presentations by clients indicate that it is the client’s solution rather
than the consultants’ solution. In this way, clients can prevent the ‘not-invented-here
syndrome’.
Action point
Do not try to please everyone in the audience at all costs. Focus on clients because
they have hired you.
Develop the storyline
After consultants have designed the presentation structure, they develop a storyline
for the presentation. Consultants may use Post-it notes on a storyboard because this
flexible approach allows making changes to the storyline if new insights emerge
(Figure 10.7). Each Post-it gets a line with a message. The lines of the series of Postits should read as a story. Consultants call this storyline the ‘horizontal flow’ of the
presentation. Storylines are the basis for PowerPoint presentations. But consultants
can also turn storylines into text reports. Consultants structure both PowerPoint
presentations and written reports as storylines or sequences of messages, on
respectively slides and pages.
Storylines are the basis for PowerPoint presentations
Figure 10.7 A presentation structure in Post-it notes on a storyboard
Presentations about opportunities
So far, we have only discussed problem cases. But consultants also analyse client
opportunities. If the audience is knowledgeable about the opportunity, then
consultants can use a solution-driven presentation structure (Figure 10.5). But the
audience members may not know or not believe that the company has an opportunity.
There may be stakeholders who deny or question the opportunity.
The sequential analysis of an opportunity
The presentation of solutions for opportunities to audiences that lack knowledge is
different from problem cases. Like the sequential analyses of opportunities differs
from problems, so do the presentations differ. Unlike problem analyses, the starting
point of opportunity analyses is not a gap. Consultants distinguish three steps for
opportunity analyses:
1. Consultants explain why the client has an opportunity.
2. Consultants present where the opportunity is.
3. Consultants show what the (estimated) size of the opportunity is or by how much
performance can improve.
Figure 10.8 visualizes the opportunity-driven structure for a presentation to an
audience that does not know the opportunity. Or at least there are a few participants
who have no knowledge or perhaps deny the opportunity.
Figure 10.8 An opportunity-driven presentation structure for an audience that lacks
knowledge
DESIGNING SLIDES
The slide as the carrier of a message
Consultants use only one (1) message per slide
Each Post-it note serves as the basis for a PowerPoint slide (Figure 10.7) as the lines
on the Post-it become the slide titles. Consultants use only one (1) message per slide
to make the slides relatively simple and easy to understand for the audience. Chapter
8 already outlined some basic ideas about slide design. The slide titles or messages
logically follow each other and together form the horizontal flow of the presentation
(see Figure 10.9).
Figure 10.9 Horizontal and vertical flows of slides
A top-down approach
Consultants distinguish between three components of a slide: the slide title, the slide
body, and the slide justification. Consultants start top-down. They take the line
(message) from the storyline and make it the title of the slide. Then consultants
design a slide body that supports the message in the title. The slide body must be
consistent with the title. Consultants call the relation between heading and body the
‘vertical flow’ of the slide (see Figure 10.9). The justification of the slide body
concerns the source reference. If the underlying method and analytical techniques
are complex, consultants make back-up slides with explanations.
Keep it simple
There is a tendency to put too much information in a slide. This is especially true if
there is a limit to the number of PowerPoints that clients allow for presentations. Then
people want to put too many messages on a slide. Besides, people may be tempted
to place more information in the slide body than support of the message requires.
Chapter 8 already discussed that slide bodies should just defend slide titles: no more
and no less. Consultants avoid information in the slide body that is not needed to
support the slide message. Consultants keep slides simple because unnecessary
data makes it more challenging for audiences to understand slides.
Avoid wordy slides
PowerPoint presentations are not text reports. The report pages should provide
complete information to readers. Report writers are not present to explain their
writing. How different it is with PowerPoint presentations. Unlike pages, slides do not
have to do the communication work on their own. Presenters and slides together
communicate the messages to the audiences. Therefore, consultants do not create
PowerPoints that look like report pages. See Figure 10.10 for an (exaggerated)
example of a bad slide. Slide bodies should contain the essence but not too much
detail. There is simply not enough space on slides for large numbers of words.
Consultants do not want to use font size 10. Clients should not treat slide
presentations as substitutes for reports.
Figure 10.10 A slide is not a text page
Disclaimer
Consultants may give clients digital copies of slide presentations. Clients may
distribute the PowerPoints to stakeholders who did not attend the consultants’ oral
presentations. People who were absent during these meetings will not get the exact
comprehension as those who were present. The absentees miss the presenters’ oral
explanations. Therefore, consultants may put a disclaimer on slide decks like: This
presentation is not complete without a verbal description.
Action point
Do not try to make PowerPoints that are still understandable without your oral
explanation. Slides should convey the messages together with you.
Different charts for different messages
Consultants visualize their data as much as possible. Most clients and other
stakeholders understand visuals easier than texts and tables. The audience does not
want to read slides like Figure 10.10, and these people should not think about having
to understand tables of 10 rows and 8 columns full of numbers. Digesting such slides
takes too much energy. After a few slides, audiences get tired, and their attention
weakens. Therefore, consultants visualize the information whenever possible. If they
have quantitative data, then they do not show tables but charts.
Temptations to create fancy-looking charts
Computer programs can produce so many graphs nowadays. Chapter 8 discussed
software for (interactive) visualizations that consultants use. One push of a button is
enough to create the most fancy-looking charts. It is tempting to develop
sophisticated-looking diagrams. In such a case, the form may take precedence over
the content. Clients and present stakeholders will be less charmed by the graphic art
pieces that consultants can get from such software. Remember that clients and
stakeholders should understand the consultants’ presentations with as little effort as
possible. Consultants do not exhaust their audience with graphic art that
unnecessarily complicates slides. Consultants make smart use of the software to
make presentations more attractive instead of more complex.
One push of a button is enough to create the most fancy-looking charts
The importance of the message
The software knows the consultants’ data, but it does not know what message
consultants want to convey. Let us use an example about scores of companies on
customer decision factors. The left-hand bar chart of Figure 10.11 organizes data by
company. But as the right-hand bar chart shows, consultants can also rank the data
by decision factor. What graph should consultants use? It depends on the message
that consultants want to convey. For example, assume that the consultants’ message
is: ‘Price and quality are strengths of competition whereas performance and quality
are strengths of X’. Then the left-hand chart is the best choice. But the consultants’
message may also be: ‘X loses on price and service to the competition’. Then the
right-hand chart is better.
Figure 10.11 Different chart types for different messages
Messages and chart types
Chapter 8 already touched on chart types. Here we provide an overview of message
types and recommended chart types (see Figure 10.12). The saying is: different
horses for different courses. We will explain a few graphs. But we will not explain
everything because we assume that much is already known.
Figure 10.12 Message types and chart types
Benchmarks
If consultants want to compare two of several things, a horizontal bar chart is best.
Consultants use bars for benchmarks. For example, comparisons of companies are
candidates for bar charts (see Figure 10.11). But for an industry cost curve,
consultants use columns (see Figure 10.13). The letters represent the different
companies in the industry. The column width reflects the production capacity of the
companies (in numbers of products).
Figure 10.13 An industry cost curve is a comparison with columns
Components
As discussed before, consultants often decompose a subject into components. If
consultants want to show the value of the elements, then they may use pie charts.
For example, consultants want to present the market shares of the client and the
other companies in the industry. Sometimes consultants want to compare at the
component level. Then they may use stacked bars. See, for example, Figure 8.19. If
consultants decompose performance gaps into components, they may use bar
waterfall charts. See, for example, Figure 9.16.
Time series
People associate column graphs and line graphs with a time course. Therefore,
consultants use column or line charts for time series. If consultants want to further
specify the rate of change over time, they can add an arrow and a balloon with the
average growth or shrinkage. For example, the ‘9%’ in the oval in Figure 10.14 is the
compound average growth rate of sales (CAGR).
Figure 10.14 A column chart with extra information about the rate of change
Visualizing qualitative data
There are limits to what you can quantify without appearing artificial
Visualizing quantitative data with charts is a well-known practice. But how do
consultants display qualitative data? Consultants want to make as many subjects as
possible measurable, and they measure as much as possible. But it goes without
saying that not everything can be quantified. There are limits to what you can quantify
without appearing artificial. Part of the problem analysis and part of the solution may
not lend themselves to quantification. These parts of the presentation are qualitative.
Besides numbers, consultants can use text. Yet, they do not want PowerPoints like
text pages (see Figure 10.10). Consultants present keywords instead of showing
complete sentences. They visualize relationships between keywords using boxes,
arrows, chevrons, and other graphic forms. Computer programs offer many ready-touse forms to visualize textual information. Think, for example, of PowerPoint’s
SmartArt. Consultancy firms may have their own digital libraries of icons and other
visual forms. Figure 10.15 presents some examples of visual forms. Consultants can
use these forms to show process flows, categories, and other visual structures of
qualitative data.
Figure 10.15 Some visual forms to present qualitative information
Visualizing the presentation structure
As you have seen, consultants pay a lot of attention to the structure of presentations.
Consultants use various techniques to emphasize the presentation structure to the
audience. Clients and other stakeholders present must have the structure well in their
mind. Otherwise, the following questions may arise:
Where are we now in the presentation?
How does this slide fit into the bigger picture?
How far along are the consultants with their presentation?
By emphasizing the presentation structure, consultants can manage the expectations
of the audience.
The agenda
A well-known technique for structuring presentations is the agenda. Consultants
make agendas for presentations. As usual, they present the agenda slide at the
beginning of their presentations. Consultants repeat the agenda slide every time they
arrive at a new agenda item. They indicate the current topic by placing a box around
it. Figure 10.16 shows the agenda with a moving box on the left side.
The tracer
Another technique for structuring presentations is the ‘tracer’. Tracers are small
visualizations or texts in the top right or top left corner of each slide. Figure 10.16
shows a slide with a tracer in the top right corner. Tracers inform the audience where
slides fit in the bigger picture of presentations. Tracers may point to agenda items.
More sophisticated tracers like in Figure 10.16 may have multiple components. Each
component may point to an agenda item. Consultants highlight the focal component
of the tracer. For example, in Figure 10.16, the tracer consists of three chevrons. The
consultants highlight the first chevron, which points to the presentation’s first section.
But consultants could also use the chevrons to indicate the various steps of a
process, such as the client’s value-adding processes or the process for implementing
the consultants’ advice.
Figure 10.16 Visual techniques to emphasize the presentation structure
DELIVERING PRESENTATIONS
Our focus is on the screen content of presentations. But personal delivery of
presentations is a crucial success factor. A comprehensive discussion of all aspects
of effective presentation is beyond this book but Figure 10.17 provides some practical
advice.
Figure 10.17 Some practical advice for presenting
CONCLUSION
Consultancy can be abstract and complex for clients and stakeholders. Moreover, the
traditional (people-based) delivery model of consultancy lacks a physical product that
clients and stakeholders can see and touch (we acknowledge the software products
of asset-based consultancy). Furthermore, clients cannot objectively measure the
added value of consultancy. Therefore, communication with clients and other key
stakeholders is critical for consultants. Presentations are one of the most vital
communication techniques of consultants. Consultants present their work plans,
analyses, and recommendations to clients and other key stakeholders during the
project. Because consultancy can be so complex, structuring of presentations is so
essential. Consultants use structuring to simplify their presentations. Simplifications
help clients and other key stakeholders in the audience to understand consultants’
presentations. The audience’s understanding is critical for their acceptance and
support for work plans, analyses, and advice.
Running Case
THE AUDIENCE
Consultancy NoSlideshow has developed possible solutions to Keyboard’s problem.
Partner Kate and her consultants have evaluated these options and selected the
option labelled ‘A-Focus’ as their recommended solution. Josh, Keyboard’s CEO has
invited Kate to present her advice to his top management team. The meeting will take
place next week. The venue is the boardroom, and Kate will get an hour for
presentation and discussion.
She starts the preparations. First, she thinks about the purpose of the presentation.
Kate no longer must convince Josh of the value of the advice. He has already
informed her that he is delighted with Kate’s recommended solution. But Josh does
not decide alone on the solution. There is a big top management team that can
participate in the decision-making process. Josh has made it clear to Kate that it is
not a done deal. There are a few critical people on the team. Some even deny that
there is a problem.
A PROBLEM-DRIVEN STRUCTURE
Kate will kick off her presentation with non-controversial and even complimentary
words about what Keyboard is and what the company has already achieved.
‘Keyboard has rapidly become the number two player’. Since the audience has not
yet reached a consensus about the existence of the problem, Kate must start with a
question about that problem.
She will begin with the following rhetorical question: ‘Does Keyboard have a
problem?’. Kate will not wait for the answer but will show a slide with the profit gap
compared to the market leader (see Figure 6.16). The management team members
who denied the problem cannot deny these numbers. All must recognize that their
business is underperforming.
Now Kate can launch her next rhetorical question: ‘Where is the problem?’. Again,
Kate will not wait for the answer but will show a slide with insights from the analysis.
She will compare the varying profitability of customers (see Figure 7.24).
After the audience accepts the analysis, Kate can put the following question to them:
‘Why does the problem exist?’. Josh told Kate that a few other top managers still
think that scaling disadvantages drove low profits. Kate must clear this
misunderstanding before she can reveal the actual causes. Otherwise, the people
who believe in the diseconomies of scale will not be open to other explanations of the
problem. Kate will show Figure 6.17 to prove that factors other than scale cause most
of the profit gap. She will acknowledge that there are disadvantages of scale. Still,
Kate will also show that these disadvantages only explain a small part of the gap.
Next, she will explain that a series of unprofitable business practices causes most of
the problem gap.
After the audience has accepted the explanation of the gap, Kate can present the
possible solutions. Based on the client’s criteria, she will demonstrate that the ‘Backto-Basics’ option is best. Finally, she will substantiate this recommended solution.
Figure 10.18 shows the presentation structure.
Figure 10.18 A problem-driven presentation structure
SUMMARY
This chapter started with outlining the importance of (structured) communication for
consultants. Consultancy is abstract and complex for clients and other stakeholders.
Communication with clients and stakeholders is essential for consultants to:
1. inform clients and stakeholders
2. convince them of the value of the analyses and advice
3. motivate them to support the consultancy project and implement the advice
Consultants use presentations throughout the project:
an introduction of the work plan at the project kick-off
updates of the progress of problem analysis and solution development during the
project
presentation of the advice at the end of the project
Consultants present to the steering committee and to wider audiences of
stakeholders. The chapter also discusses some pitfalls in presentations. Consultants
can feel pressured to prove their worth in a presentation. They can make the
presentations too complex and too long. As a result, consultants lose contact with
their audience. The audience cannot follow the presentation and lose their attention.
Presentation structure
We outline how consultants structure presentations. They do not start with creating
slides but define the message first. Consultants do not push the message down the
audience’s throat but pull the audience through rhetorical questions. Consultants use
different questions for different situations. If the audience does not know the problem,
the main questions are as follows: Is there a problem? Where is the problem? Why
does the problem exist? How to solve the problem? The answers of the consultants
raise questions from the client and other stakeholders in the audience. Consultants
use the analysis outcomes of the problem hypotheses tests to support their problem
analysis. Likewise, they use the tests of solution hypotheses to substantiate their
recommendations. The presentation structure fits the audience’s knowledge.
The storyline and slide design
The presentation structure forms the basis of a storyline (the horizontal flow).
Subsequently, consultants translate the storyline into a series of slides. Each slide
has one message in the title. The slide body supports that message (the vertical
flow). Consultants visualize quantitative data in the slide body via charts. The
consultants also seek visualization for qualitative data. Finally, consultants use
tracers and agenda slides with moving boxes to clarify the presentation structure.
REFERENCE
Baaij, M. G. (2011). The Consultancy Method: From Problem to Solution. The Hague,
NL: Academic Service (Dutch language).
Minto, B. (1987). The Pyramid Principle: Logic in Writing and Thinking. London:
Pearson.
Porter, M. E. (1987). From Competitive Advantage to Corporate Strategy. Harvard
Business Review, 65(3): 43–59.
Zelazny, G. (2007). They Say it with Charts Complete Toolkit. New York: McGraw-Hill.
QUESTIONS
1. The audience for the final presentation consists of the project steering committee
and the chairperson of the client’s works council. You have kept the steering
group informed, but the works council chairperson has very little knowledge of
the client’s problem. How do you deal with this significant difference in prior
knowledge of the members of the audience?
2. You present your recommendation to expand the client’s product range. One of
the arguments is that consumers will respond positively to this expansion.
However, one of the audience members, the client’s production director,
disagrees with your findings about consumer responses. He questions your
analysis method and data. How can you best respond to this criticism?
3. In an online video presentation, the participants can read the PowerPoint slide
on their computer screen. This way, they can read much better than in a physical
meeting room setting where the presentation screen is at least a few feet away
from them. Do you think it is good to put more information on the slides in a
video presentation?
11 PREPARING FOR IMPLEMENTATION
INTRODUCTION
This chapter outlines the implementation design steps of the Structured ProblemSolving method of the world’s leading management consultancy firms in the ‘Advise &
Activate’ group. First, we analyse gaps between the clients’ existing and desired
situations. These gaps mean that clients must change. In the second section, we
assess the clients’ readiness for these changes. Third, we outline how consultants
may design implementation plans for these changes. The chapter ends with a
conclusion, a running case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the structured approach to implementation
Understand the concept of the implementation gap
Understand the importance of stakeholder management in the implementation
Know how to decompose an implementation gap into concrete actions
Know how to assess the readiness of stakeholders
Know how to make an implementation planning.
SETTING UP AN IMPLEMENTATION PROJECT
Defining the project’s purpose
The first question for implementation preparation is: What do we want to achieve with
the implementation? Consultants formulate the purpose of implementation projects in
consultation with their clients. The generic purpose of these projects is to implement
the consultants’ recommendations and so close the clients’ performance gaps.
Specific purposes vary by types of recommended solutions. For example, operational
improvements may be about doing things better or about doing better things.
Scoping the project
Consultants and clients must define the project scope. It should be clear to all
relevant stakeholders what the project’s boundaries are. Consultants must create a
written IS/NOT list, respectively a list of what is included in the project (the in-scope
activities) and what is not included (the out-scope activities).
Defining success measures
Consultants and clients must determine how to measure the success of
implementations. The purpose of solutions is closure of clients’ performance gaps,
such as profit. Since many other factors influence clients’ performance, consultants
must define clear project outcomes and deliverables, such as new skills for
employees and a new organizational structure. Consultants need to define objective
and verifiable indicators of project success.
Structuring the project work
The next question is: How are we going to do it (the implementation)? Consultants
determine what needs to be done to implement the solutions. They break down the
implementation work into a hierarchy of increasingly concrete actions: the work
breakdown structure. This structuring of the implementation follows the same
principles of logical structuring that consultants use for structuring problems,
solutions, and presentations. The actions must be MECE: mutually exclusive and
collectively exhaustive.
Scheduling the project work
Consultants and clients also need to schedule the project work. When should
implementation begin? When should it end? Besides timing and pacing of the project
activities, consultants also need to consider the order or sequence of work.
Consultants identify any dependencies between activities to avoid unnecessary
waiting for activities that must be completed before new activities can be started.
Budgeting the project
Consultants must also determine what are the necessary resources to conduct the
project. Critical resources are people. This is not just about the numbers of people
and how many hours they may spend on the project. Equally important are the
qualities of these individuals: knowledge (and experience), skills, and attitude. In
addition to human resources, projects require financial resources. Projects need
budgets for investments (for example, in assets) and expenditures (for example, on
external service providers).
Organizing the project
Consultants form project teams and define project team member profiles in terms of
knowledge (and experience), skills, and attitude. Team members can be consultants
and clients’ employees (managers and/or professionals). Consultants and clients
need to decide on the division of roles and responsibilities between them. Projects
should have sponsors: decision makers with sufficient authority. Besides, projects
need steering committees, consisting of sponsors, consultancy partners, and any
other relevant internal stakeholders (typically senior client managers). Consultants
create meeting schedules: when and where to meet with whom to discuss what
subjects. Consultants also design procedures for issue management. By issues in
this context we do not mean sub-questions at the bottom of issue trees but problems
that arise during projects. For example, if consultants unexpectedly come into conflict
with client employees (for instance, about access to data), there must be an
escalation procedure. Consultants also need to maintain a project file, which is the
project administration of all records pertaining to the project. Finally, consultants and
clients need to decide on communication processes. This not only involves
communication within the project team and with the steering committee, but also
communication with other relevant stakeholders.
Developing a risk management plan
Consultants need to consider the risks of implementation. Risks are specific events or
developments which negatively impact projects. Examples of negative events and
developments are cost overruns, delays, occurrence of out-scope activities, and
deterioration of project deliverables’ quality. Consultants must identify the risks and
estimate their impact and probability. Next, consultants must develop preventive
actions and/or contingency plans to deal with the negative consequences of
materialized risks.
Creating a project charter
Consultants may define a project objective statement (POS) or project charter. This
document comprises the project scope (including desired results), schedule, and
budget. It is a memorandum of shared understanding of consultants and clients. The
charter also acts as a contract between the project sponsor, the project team
(including the consultants), and other key stakeholders.
ASSESSING THE CLIENT’S IMPLEMENTATION GAP
A structured approach to implementation
Our focus is on the changes clients need to make as part of the problem-solving.
Thereby, consultants take a structured approach to implementing the recommended
solution. This approach consists of three steps:
1. Assess the client’s implementation gap.
2. Assess the client’s readiness for implementation of the solution.
3. Design of the implementation plan.
Figure 11.1 shows this three-step approach to structured solution implementation.
Figure 11.1 A structured approach to solution implementation
Implementing operational solutions
Although the book’s focus is on strategic issues, we also pay attention to operational
solutions, especially since strategic solutions also have operational aspects (more
about this later in this chapter). Clients may hire management consultants to solve
operational problems. As already discussed in Chapter 6, operational issues are
limited to one or a few business functions, such as research and development (R&D),
production, and marketing. Porter’s value chain is a framework of a company’s
operating activities. In the previous chapter, we used a solution-framework consisting
of the following four parts:
processes
resources and capabilities
structure and systems
culture
Choosing frameworks
We would like to emphasize again that this is one possible framework for structuring
solutions. There are other frameworks. Solutions to operational problems mean
changes of the framework components. Since the framework’s four parts must
complement and reinforce each other, you probably cannot change one part without
doing something about the other parts. Therefore, solutions to operational problems
usually mean changes to all four parts. It is an integrative change of that business
function. Figure 11.2 compares the old values (time 0) and the new values (time 1) for
the parts of an operational solution for a business function (‘function i’).
Since the framework’s four parts must complement and reinforce each other, you
probably cannot change one part without doing something about the other parts
Figure 11.2 Gaps between old and new values of an operational solution for a
business function
Action point
It does not necessarily have to be the case that all parts must change. Do not
forcefully look for changes in a part if there is no case for change.
Identifying value gaps
For each of the four solution parts, there may be a gap between the old value and the
new value. Take, for example, the ‘production’ function of a business school. ‘Process
1’ or the old physical production process consists of four steps:
1. student reads prescribed literature at home
2. student goes to the campus for a lecture by a professor
3. student makes assignments
4. student goes to the campus for a tutorial.
‘Process 2’ or the new digital process looks as follows:
1. student watches a professor’s lecture on video
2. student uses a computer simulation to practise skills at home
3. student goes to the campus for an in-depth discussion about the subject matter
with fellow students under the guidance of a professor.
Implementing strategic solutions
Clients may also hire management consultants to solve strategic problems. In the
previous chapter, we used a framework consisting of the following parts:
arena
value proposition
value creation model
value capture model
The values of these parts must reinforce each other.
Integral changes
Solutions to strategic problems mean change of the four parts of clients’ strategies.
Since these four parts must reinforce each other, consultants cannot change one
strategic part without doing something about the other parts. Therefore, solutions to
strategic problems mean changes to all four parts. It is an integrative change of
strategies. For example, consultants may advise clients to change their arenas. With
a stroke of the pen, clients can change the value of their companies’ arenas. To
implement these ambitious changes meaningfully, clients must also tailor their value
propositions to the new arenas. Adaptation of these propositions mean adaptations of
models for value creation and models for value capture. As a result, clients are
confronted with strategic gaps for arenas, value propositions, models for value
creation, and models for value capture. Figure 11.3 compares the old situation and
the new solution for a strategy. Between the old and the new value of each part,
consultants find gaps. These gaps have high levels of abstraction.
Figure 11.3 Implementation gaps between old and new values of a strategy
Example of a gap
We illustrate gaps with an example about business school B’s arena. ‘Arena 1’ or B’s
old arena at the time of physical education on campus, consists of students with large
study budgets. ‘Arena 2’ or the new online education arena also includes students
with limited budgets. Online offerings make education affordable for students with
less financial resources.
Abstract strategy parts
The parts of strategies are more abstract than the parts of operational solutions. For
example, a value creation model is more abstract than a business process. The gaps
between old and new values of strategic parts are more abstract than the gaps
between old and new values of the parts of business functions.
The relationship between strategy and business functions
As discussed before, strategic solutions encompass most if not all business functions
of a company. A strategy is linked to these operational functions. Figure 11.4 shows
the relationship between a strategic solution and the relevant operational solutions.
Strategic solutions go hand in hand with the operational solutions for the relevant
business functions. There must be a fit between a strategic solution and the set of
related functional solutions. To keep Figure 10.4 simple and straightforward, we
provide only two examples of business functions: R&D and production. In a real-world
client project, consultants may have to consider many more business disciplines.
There must be a fit between a strategic solution and the set of related functional
solutions
Figure 11.4 The fit between a strategic solution and the relevant operational solutions
A ‘W-model’ of repeated decomposition and
composition
Clients cannot implement abstract solutions
You may ask: How should clients close these abstract gaps? Clients cannot close
gaps at high levels of abstraction. Clients cannot implement abstract solutions.
Consultants decompose abstract solutions into increasingly concrete parts. We
illustrate this decomposition process with Coleman’s bathtub model. Earlier, we used
this model to show the process of problem-solving. Now we need to expand the
model to encompass solution implementation. Implementation implies another round
of decomposition.
1. Consultants decompose problems for analysis.
2. Consultants decompose solutions for implementation.
Solutions are abstract. Therefore, consultants need to descend to lower levels of
abstraction. So, consultants alternate decomposition and composition to help their
clients solve problems and improve performance. The extension of the Coleman
bathtub model with a second decomposition makes it look like a ‘W’ (see Figure
11.5).
Figure 11.5 A ‘W-model’ of alternating decomposition and composition
The linkages between strategy and operations
Operational gaps are easier to translate into concrete actions for implementation than
strategic gaps. As discussed, strategy and business functions are related (see Figure
11.4). New strategies call for new values of relevant business functions. To bridge
(strategic implementation) gaps between old and new values of strategic parts,
consultants need to bridge (operational implementation) gaps between old and new
values of the parts of the relevant business functions. Figure 11.6 shows how
strategic gaps and operational gaps are linked.
Figure 11.6 Linkages between strategic and operational implementation gaps
STRUCTURING IMPLEMENTATION GAPS
Operational implementation gaps
Consultants must close the gaps between old and new value of the parts of business
functions or strategies. Closing gaps requires concrete implementation actions.
Consultants decompose the implementation action to close high-level, abstract gaps
into a hierarchy of increasingly concrete steps to close lower-level, concrete gaps.
This hierarchy is called a ‘work breakdown structure’. Consultants implement these
actions at the business function level. They decompose the implementation of a new
value for a business function into a set of new values of that function’s composing
parts. To keep Figure 11.7 clear and simple, we show only two parts: processes on
the one hand and structure and systems on the other hand. The first decomposition
of the business function in Figure 11.7 is a functional grouping: the four parts of that
business function. The second decomposition in Figure 11.7 follows a chronological
order of implementation steps for changing the values of a part of that business
function. Functional grouping and chronological ordering are two logics for
decomposing solutions into implementation actions. Consultants may alternate these
logics or repeat them, like multiple decompositions into functional groupings. Figure
11.8 shows the other two parts of a business function: resources and capabilities on
the one hand and culture on the other hand.
Figure 11.7 Implement new values for the processes and for the structure and
systems of a business function
Figure 11.8 Implement new values for the resources and capabilities and for the
culture of a business function
Strategic implementation gaps
The now well-known company X illustrates the decomposition of strategic gaps. X
wants to implement a new value for the strategic part ‘customer value proposition’.
The company intends to introduce a basic model to the customer segment of ‘other
hospitals’ instead of the old, more sophisticated model. You may ask: What
operational functions are relevant for the strategic part ‘customer value proposition’?
Figure 11.9 shows a decomposition of the implementation of the new value for the
customer value proposition by the relevant operational functions. The logic of the
decompositions is functional grouping.
Figure 11.9 An example of a decomposition of a strategic implementation into
operational functions
Decomposing with the help of internal stakeholders
Decomposition requires knowledge of the client company. Lower levels of
breakdowns are increasingly concrete and detailed. To obtain knowledge about lower
levels, consultants must have access to the client’s lower-level managers and
frontline professionals (employees who work on the factory or shop floor and those
with direct contact with customers, suppliers, and other business partners).
Decomposition of solutions into implementation actions involves descending the
client’s organizational hierarchy. During the decomposition process, consultants
follow a cascade down the client hierarchy from top management to middle
management, lower management, and frontline professionals.
The consultants not only benefit from the knowledge of these stakeholders but also
create stakeholder commitment to the implementation along the way. Engaging with
stakeholders leads to an inclusive approach to implementation. These consulted
stakeholders may develop a feeling of ownership of the solution. Such ownership is
the opposite of the ‘not-invented-here’ syndrome: people resist solutions because
they were not part of the process. Because of their engagement in the process, these
stakeholders buy into the implementation. They become committed to making the
implementation successful.
Action point
Do not try to decompose abstract solutions into concrete actions on your own. Using
relevant stakeholders helps you concretize the steps and gives you the support of
these people to implement these actions.
Prioritizing
Consultants evaluate the implementation actions on two criteria: the action’s
contribution to the client’s performance and the ease of implementing the action
After the decomposition, consultants have an overview of all concrete implementation
actions. These are the actions on the lowest level of the breakdown structure. Clients
must perform all of these actions to implement the solution. But clients cannot
perform all activities simultaneously. That is beyond the resources and capabilities of
clients. Therefore, consultants must determine an intelligent order or sequence of
actions. Rapid success is vital to create support for the changes. It helps if
consultants can show early in the implementation process that it works, that the
client’s results improve. Therefore, consultants evaluate the implementation actions
on two criteria: the action’s contribution to the client’s performance and the ease of
implementing the action. Figure 11.10 shows the mapping of the action on these two
criteria. The top-right quadrant houses the impactful and easy actions that are the top
priority for implementation. They are the ‘low-hanging fruit’. Consultants also must
account for dependencies between actions. For example, there may be an action of
the third priority that is a condition for a higher priority action. For instance, before a
bank can introduce a new customer service (a first-priority action), it must first build a
new IT system (a third priority action).
Figure 11.10 Prioritizing implementation actions
ASSESSING CLIENT’S READINESS FOR
IMPLEMENTATION
The need for stakeholders
Clients need to close gaps for successful implementation of solutions. Top managers
of clients must delegate most implementation actions to their lower managers and
professionals. But they also depend on approval, cooperation, and passive support
from various external stakeholders. You may wonder: Will these stakeholders do what
client management needs to implement solutions? Consultants do not take
contributions of stakeholders for granted. In the following section, we discuss why
consultants are right.
Mapping stakeholders in implementation
Chapter 6 introduced stakeholder engagement. In Chapter 11 we outline how
consultants work with stakeholders during implementation. Figure 11.11 shows a
stakeholder map again. Consultants focus on stakeholders who have power to
influence implementations, either positively or negatively. Powerful aligned
stakeholders will positively influence implementations, but powerful conflicting
stakeholders will have negative influence. Stakeholders’ responses vary with the
nature of solutions. For example, client’s employees will not be aligned with cost
reduction projects where many will lose their jobs and where survivors will have much
higher workloads. But growth strategies with lots of investment in people can
probably count on support of employees.
Figure 11.11 A stakeholder map
Internal and external stakeholders
Consultants distinguish between internal and external stakeholders, actors
respectively inside and outside the client company. Figure 11.12 shows a
segmentation of internal stakeholders into three hierarchical groups.
Top management (also called senior managers or executives)
Middle and lower management
Frontline professionals employees. They are the professionals on the factory and
shop floor.
Figure 11.12 Three groups of internal stakeholders
External stakeholders
External stakeholders form a broad category. Consultants distinguish between
stakeholders in the market environment and those in the so-called ‘non-market’
environment, typically the public sector. The market environment is driven by
economic motives and organized by the market or price mechanism of supply and
demand. The latter environment is driven by non-economic motives and controlled by
institutions other than the market, such as governments and regulators. While the
neo-liberal movement that emerged in the 1980s shifted power to the market
environment and focused on profit, in the twenty-first century we see an increasing
focus on non-economic interests such as welfare and the environment (people and
planet goals). In addition, the influence of the non-market environment actors, such
as non-governmental organizations (NGOs), on companies is increasing, as
evidenced by the growing importance of corporate social responsibility (CSR). Figure
11.13 shows some critical external stakeholders.
Figure 11.13 The client and examples of key external stakeholders
Readiness of internal stakeholders
We discuss internal stakeholders whose support clients need for implementation. You
may ask: Will these actors help clients to close gaps? Consultants distinguish
between necessary conditions: stakeholders must be aware of solutions, aligned with
the client, and able to implement. Figure 11.14 shows these conditions. Consultants
assess stakeholder readiness through, among others, interviews, surveys, and
observation of behaviour. Readiness assessments allow consultants to identify gaps
in stakeholder awareness, alignment, and ability for implementation.
Figure 11.14 The readiness of stakeholders to implement solutions: awareness,
alignment, and ability
Awareness of internal stakeholders
These stakeholders must be aware to implement solutions. You may ask: What do
you mean by ‘aware’? Awareness is about knowledge.
Stakeholders must know the focal problems or the opportunities of their
company. It is not self-evident that all internal stakeholders are aware of these
issues. Before consultancy projects begin, even clients’ top managers may not
know what the real problems or opportunities are. Consultants identify the real
issues.
Stakeholders must also know the performance objective of their company. They
need to know what their company wants to achieve. As discussed earlier,
objectives do not have to be limited to profit. Companies can also focus on the
other two Ps: people and planet. Problems lower performance. Stakeholders
need to know how big the gap is between realized performance and the
objective. In contrast, opportunities allow higher performance objectives.
Stakeholders should know the new objective and the gap between the old and
new objectives.
Finally, stakeholders must know the solution their company has chosen. They
need to understand what the solution is and why the company chose this specific
solution. For implementation of the solution, stakeholders must know what to do.
They must know their role and tasks in the solution implementation. If
stakeholders are not aware, they will be confused about solutions.
If stakeholders are not aware, they will be confused about solutions
Alignment of internal stakeholders
Stakeholders should be aligned with the client company. Consultants distinguish
between two areas of alignment: objectives and solutions.
Stakeholders must be aligned with the client’s performance objectives. In cases
of opportunities, some stakeholders may be inclined to oppose these new, higher
objectives. The higher the new objectives, the greater the challenges for some
stakeholders to achieve them. Top managers may hold these stakeholders
accountable for achieving the new higher objectives.
Stakeholders should also be aligned with the chosen solutions. They must agree
with the way the client company wants to solve problems or seize opportunities.
Opinions as to the perceived correctness of chosen solutions may vary.
Conflicting interests
Stakeholders may have not enough confidence or no confidence at all in the selected
solutions. Stakeholders may believe that these solutions will not be effective, or not
efficient, or unfeasible to implement. Stakeholders may also disagree about the ethics
of solutions. Solutions can clash with stakeholders’ norms and values. If stakeholders
are not aligned with solutions, then they will resist the implementation. You may ask:
How can client management align internal stakeholders with conflicting interests? We
distinguish three approaches.
Stakeholders may also disagree about the ethics of solutions
1. Client management may try to convince these stakeholders that the solution is
also in their (long-term) interests.
2. Client management can provide incentives to these stakeholders if they
cooperate.
3. Client management may use their power over these stakeholders to make them
accountable for some critical results. If they consciously fail to deliver these
results, client managers hold them responsible and impose sanctions.
Consultants will advise client management on the best (combination of) approaches.
If these approaches fail, then client management must find ways (again consultants
can provide advice) to keep these conflicting stakeholders at bay. Client management
must prevent these opponents from undermining the implementation.
Ability of stakeholders
Stakeholders must be able to implement solutions. These lower managers and
professionals should have the knowledge and the skills to conduct their tasks in the
implementation. They should also have the resources to fulfil their implementation
tasks. The organizational structure and systems should enable them to do their
implementation work. For example, stakeholders should be empowered and have the
mandate for their assigned implementation tasks.
Moreover, stakeholders should have time for their implementation tasks. The
implementation tasks are in addition to their everyday tasks. The company must
continue to work during the implementation. ‘The shop will remain open during the
renovation.’ Therefore, stakeholders are temporarily faced with a double burden.
They need to do their everyday work plus the implementation work. Perhaps other
implementation projects are taking place at the same time. The simultaneous
implementation projects ensure an accumulation of work for those involved. If
stakeholders are unable to implement solutions, they will be frustrated.
If stakeholders are unable to implement solutions, they will be frustrated
Readiness of external stakeholders
Based on implementation gaps, consultants determine which external stakeholders
are needed for implementation. Consultants distinguish between different needs of
clients.
1. There is the need for passive support of the solution. Clients may need external
stakeholders, such as the government, regulators, shareholders, and lenders, to
approve solutions. Besides, external stakeholders, like the unions, nongovernmental organizations (NGOs), the public, and the media must accept
solutions. Acceptance of solutions by these stakeholders legitimizes these
solutions. Acceptance gives clients a social license to operate.
2. There is the need for active support from stakeholders. Clients may need
resources from stakeholders. For example, governments may provide subsidies,
tax arrangements, and other support to clients. Clients may also require approval
from regulators. Clients may lobby for changes of regulations to accommodate or
support solutions. Moreover, shareholders and lenders may have to help clients
by providing financial funding for implementations. Other stakeholders, such as
customers, complementors, and business partners, may have to commit their
time and knowledge to support implementations.
Natural opponents
External stakeholders who must support solutions must be aware, aligned, and able
to provide that support. Without awareness, alignment, and ability, clients cannot
expect support from these stakeholders. Consultants also identify any powerful
external stakeholders with conflicting interests who may undermine implementation.
Some stakeholders cannot be aligned. They are the client’s natural opponents.
Competitors are the most obvious example of this category of stakeholders.
Consultants must come up with a plan to keep these opposing stakeholders at bay.
PLANNING AN IMPLEMENTATION
We distinguish between two vital parts of implementation planning:
the implementation actions
the enabling of relevant stakeholders to conduct these actions
The latter is about creating awareness, alignment, and the ability of these
stakeholders. Clients must inform, align, and enable relevant stakeholders before
these stakeholders can conduct their implementation actions. Figure 11.15 shows a
stylized and simplified example of a planning.
Figure 11.15 A stylized and simplified example of implementation planning
Staged approach
Implementations are not without risks. Solutions are based on assumptions that
consultants cannot all test with fact-based analyses. Some assumptions are about
the future, and there are no data about the future. That is why there remains a bit of
uncertainty about whether solutions will work. Consultants can mitigate risks by
starting implementations with pilot tests. If a pilot is successful, consultants roll out
the implementation plan. This is a staged approach to implementation: start small and
scale up.
Timing
Consultants need to determine the sequencing or order of implementation actions.
Which actions should clients take first, and what comes next? Thereby, consultants
must look closely at the dependencies of the implementation activities. Some actions
build on others. Consultants create schedules of actions. Clients need to make
decisions about the pacing of the implementation. How fast should they roll out the
implementation plan? When should they place milestones? The quicker the
implementation, the more resources are required. A rapid implementation may also
entail risks. The chance of errors increases under time pressure. The desired speed
of implementation also depends on the nature of the problem or opportunity. In some
cases, clients must quickly implement solutions; otherwise, it is too late. Sometimes
haste is required. For example, if clients find themselves in a crisis that threatens
their survival, quick action is vital.
Actions to create stakeholder awareness
Figure 11.16 shows some examples of actions for creating awareness, alignment,
and ability of stakeholders. Our discussion focuses on internal stakeholders. As
discussed before, clients may need to work with external stakeholders to implement
solutions. Some examples are suppliers, customers, and business partners. Like
internal stakeholders, these external actors may lack awareness, alignment, and
ability. Clients need to create awareness, alignment, and ability of both internal and
external stakeholders.
Figure 11.16 Examples of actions for creating awareness, alignment, and ability of
stakeholders
Creating awareness
The readiness assessment informs consultants about which stakeholders lack
awareness about what subject. Foremost, consultants must inform these
stakeholders. But consultants also must answer any questions from these
stakeholders. Therefore, consultants need to set up two-way communication. The
communication with internal stakeholders should be multi-level. The consultants need
to address the different hierarchical levels of the client company: top managers,
middle and lower managers, and frontline employees. The consultants may use multimedia, including online video meetings and print communication. In the digital era,
physical gatherings remain essential. The consultants may organize workshops for
small groups and townhall meetings for large groups of employees. Top management
of the client can play an important role in communication. Consultants can prepare
the communication, but it is the top managers who communicate with their
subordinates.
Actions to create stakeholder alignment
The readiness assessment informs consultants about which stakeholders lack
alignment on what subject. Client top management needs to align these stakeholders
on both the performance objectives and the solution. The consultants advise client
management how to engage and persuade these stakeholders. In the case of
problems, client top management need to instil a sense of urgency on the
subordinates and external stakeholders. So-called burning platforms or crises will
motivate stakeholders to accept solutions and support their implementation.
Envisioning the future
In case of opportunities, client top management may envision the company’s future
after successfully seizing that opportunity. In any case, consultants need to develop
compelling stories about solutions. Such stories should contain clear ambitions or
aspirations. Because profit may not inspire all stakeholders, consultants need to
identify meaningful purposes for everybody. Defining the purpose of implementations
in terms of shared values and non-profit objectives, such as people and planet, may
motivate employees and non-market stakeholders.
An inclusive approach
All required stakeholders should feel part of the implementation journey. Therefore,
the implementation must follow an inclusive approach. Consultants engage the
stakeholders with two-way communication and meetings. To align internal
stakeholders, client top management may have to adapt the organizational structure.
They may have to change roles and responsibilities. Consultants may advise on the
required changes. It is crucial for implementation success to make individuals
responsible and accountable for the results of the assigned implementation tasks.
Shared responsibility means no responsibility because the individuals involved can
hide behind each other. Consultants advise on how to adapt systems for performance
management. The client must measure implementation progress and reward good
results. Finally, clients may have to improve the organizational culture to create
alignment. Top management may fulfil an essential role in cultural change by role
modelling the new behaviour.
Actions to create stakeholder ability
Make or buy
The readiness assessment by consultants informs client management about which
internal stakeholders lack ability on what implementation action. Clients must take the
‘make or buy’ decision about implementation. They must decide whether to conduct
the implementation actions on their own (‘make’) or use consultants and/or other
service providers to do these actions on behalf of the client (‘buy’). Clients may also
decide to cooperate with external stakeholders, such as customers, suppliers,
complementors, and other business partners, to conduct implementation actions.
Clients need people to lead implementations. Consultants can identify the potential
‘change agents’. These agents should get critical roles to drive the implementations.
Clients must enable these people to fulfil a positive role in the implementation. These
change agents, together with the consultants, form the implementation team.
Personal skills
Managers and frontline professionals need skills to conduct their assigned
implementation actions. Consultants distinguish between different skills, such as
leadership skills, managerial skills, and technical skills. If the managers and
employees concerned lack these skills, then consultants may train and coach these
people. Large consulting firms may have training divisions. Such training can take
different forms. Besides traditional classroom training, consultants may also offer
more modern formats like computer simulations for experiential learning. Simulations
may, for example, provide client employees with an immersive experience of their
new working conditions after implementation.
Organizational capabilities
Consultants may upskill clients’ present employees. But clients can also decide to
replace parts of their present workforce with new employees. Then clients let present
employees go. Subsequently, clients recruit new staff with the required skills. The
ability to implement solutions not only rests on the skills of individual managers or
frontline professionals. Implementation also depends on organizational capabilities,
which rely on collaboration of skilled individuals. Consultants may advise on
organizational restructuring to create linkages between people who need to
collaborate for organizational capabilities. Moreover, consultants may advise on
adjusting systems, processes, resources, and culture to enable individuals to conduct
their implementation actions together.
Implementation actions
Consultants decompose, with the help of internal stakeholders, solutions into
hierarchies of increasingly concrete implementation actions. Implementation is about
concrete actions at the bottom of this pyramid. Operational solutions are limited to
one or a few business functions. In contrast, strategic solutions encompass all
business functions and require an interdisciplinary approach. Different functions need
to cooperate for implementation of strategic solutions. If there are many actions,
consultants organize them in logical groups, called ‘workstreams’. Workstreams
consist of related initiatives or individual actions.
Budgeting
Based on the planned implementation actions and enabling actions, consultants can
determine the required people and financial funds (budgets).
People
Consultants must indicate how many people they need for their implementation team,
but also what types of people. Having the right people is crucial to carry out
implementations. The problem is that the client’s best people are not available
because they are already being deployed for day-to-day business. These talents do
not have time for implementation projects on top of their regular tasks. Therefore,
clients may tend to point out people who have time to spare. But consultants must
insist that they can select the right people for the implementation team.
Financial funds
Consultants must also develop well-founded, substantiated budgets for
implementation. The costs should be in the correct proportion to the expected
benefits of solutions. Implementations should not be so expensive that budgets
undermine the business case of the solutions. Consultants should strive for efficient
implementation of solutions.
CONCLUSION
In the implementation phase, consultants use several well-known concepts and
techniques of the problem analysis and solution development phases. The
decomposition technique comes in handy during implementation. Consultants
decompose high-level solutions into hierarchies of increasingly low-level
implementation actions. During implementations, consultants use the gap concept
again. In the problem analysis and solution development phases, performance gaps
point to differences between realized performance and performance objectives.
Implementation gaps refer to differences between old and new values of solutions’
parts. The technique of stakeholder mapping during implementation may be more
critical than in previous project phases. It should be noted that stakeholders in
implementation are not necessarily the same as the stakeholders of the problem and
solution phases. In each phase, consultants must reconsider who the relevant
stakeholders are.
Running Case
SOLUTION DECOMPOSITION
The consultants of NoSlideshow work together with Keyboard’s managers and
frontline professionals to decompose the ‘A-Focus’ solution into a hierarchy of
increasingly concrete implementation actions. For this example, it goes too far to
show the decomposition in full. We limit ourselves to one component of that solution.
Figure 11.17 shows the actions for implementing the new pricing function.
Figure 11.17 A decomposition of an implementation of a new pricing function
Pricing is an operational function. The consultants use the operational solution
framework for the first-level decomposition. To keep Figure 11.17 clear and
straightforward, we do not show all possible breakdowns but limit ourselves to some
examples. We display decompositions to the fourth level. The actions at this level of
the structure are concrete enough for manager or professionals to perform.
Therefore, the actions at the fourth level become part of the implementation planning.
SUMMARY
This chapter outlines a structured approach to solution implementation. Central to this
approach is the gap between the old situation and the solution, be it operational or
strategic solutions. Implementation is about bridging gaps between old and new
values of the composing parts of solutions. Consultants decompose high-level
implementation gaps into hierarchies of increasingly concrete actions. These
concrete implementation steps become building blocks of implementation planning
that consultants develop for their clients. Implementation of solutions depends to a
large extent on internal and external stakeholders. Depending on their interests,
stakeholders may support implementation or oppose and undermine it. Before
implementation, consultants identify who the internal and external stakeholders are in
the implementation process. Consultants must assess whether these stakeholders
are ready to close these gaps. The readiness assessment concerns the awareness,
the alignment, and the ability of the stakeholders. Typically, not all stakeholders are
aware, aligned, and able to support implementation. Therefore, consultants plan
actions to create the required awareness, alignment, and ability. Implementation
actions and actions to develop stakeholder readiness together constitute an
implementation planning.
REFERENCES
This chapter builds on various public sources, including the publications and
company websites of leading consultancy firms.
QUESTIONS
1. You ask the client for several good managers to strengthen your implementation
team. The client only gives you a few people who have time to spare. How do
you respond to this?
2. Many client employees do not believe in your solution. They tell you that other
consultants have tried to implement these kinds of solutions in the past but
failed. What should you do?
3. Your client is a large multinational company. During the implementation
preparation, you find out that another consultancy is working on an assignment
in a different field. The implementation of that consultancy’s solution takes up
some employees that are critical for your project. What can you do about this
situation?
12 FACILITATING AN IMPLEMENTATION
INTRODUCTION
This chapter outlines the implementation management steps of the Structured
Problem-Solving method of the world’s leading management consultancy firms in the
‘Advise & Activate’ group. First, we discuss the division of roles between clients and
consultants in implementation. In the second part, we outline how to set up an
implementation office. The third part is about scheduling the implementation actions.
Fourth, we show how consultants manage an implementation process. In the fifth
part, we outline the evaluation of consultancy projects. Sixth, we discuss the closure
of projects and what comes next. The chapter ends with a conclusion, a running
case, a summary, and questions.
MAIN LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the increasing role of management consultants in the
implementation process
Understand the role of the implementation office
Understand the role of performance management in the implementation process
Understand the potential problems in the implementation process
Understand the evaluation of the implementation
Know how to manage the implementation process.
THE CONSULTANTS’ ROLE IN IMPLEMENTATION
The increasing role of consultants
During the twentieth century, it was common for consultants who recommended
solutions for their clients to leave after the final presentation. After the consultants
left, it was up to the clients to implement the recommended solutions. Most
consultants who recommended solutions would have no role in implementation.
Clients could subsequently engage other consultants who specialize in
implementation. Development and implementation of solutions were most-times
separate worlds in consultancy. This division has largely disappeared in the first two
decades of the twenty-first century. Increasingly, clients want their consultants to
implement the solutions they recommend. Consultancy is no longer about developing
solutions but about producing results for clients. Nowadays, many consultants have
an essential role in implementation.
Increasingly, clients want their consultants to implement the solutions they
recommend
Agent of change
Consultants can act as agents of change. Their roles in implementation may range
from limited to extensive. A limited part is developing an implementation plan and
then leaving the implementation to clients. A broader role would include managing
implementations on behalf of clients. Implementations are projects, and clients may
delegate project management to consultants. Then consultants set up and manage
implementation offices. In the most extensive role, consultants would lead
implementations and do part of the implementation work themselves. For example,
consultants may train and coach clients’ personnel, design and build IT systems, and
select vendors for assets and services required for implementations. Whether
consultants have limited or extensive roles, the responsibility for implementation rests
with clients. Clients hire consultants and remain responsible. Clients can delegate the
implementation work but not the responsibility.
Division of roles and responsibilities
Consultants distinguish between the ‘what’ and the ‘how’ of implementation. What
refers to what needs to be done. Consultants can define and plan implementation
actions. But only clients’ top management can enforce that internal stakeholders
implement these actions. Clients’ leaders can order what needs to be done.
Consultants can then advise and support clients and other stakeholders on how it
should be done. But clients must take ownership of implementations. At least clients
should take a 50 per cent role in implementation trajectories: client top managers
must work alongside the consultants. Consultants have the know-how, but client top
management has the authority and power. Client employees are assessed and
rewarded by their managers instead of consultants. Client top managers can control
and inspire employees and some other stakeholders. Moreover, client leadership is a
role model. Client leaders must show commitment to implementation and must lead
by example: they should walk the talk. Consultants must insist that client leaders
sponsor and own implementation projects.
Action point
Set as a condition for any implementation project that the client takes responsibility
for the implementation and openly commits to implementing the recommended
solution.
Best effort obligation
Consultants cannot be held responsible for implementations. Implementations and
their outcomes are beyond the control of consultants. Therefore, consultants cannot
accept ‘result obligations’, which are contracts with clients in which consultants
commit to achieving specific results. There are too many variables that consultants
cannot control. For example, client managers and professionals may resist
implementation plans or fail to fulfil their tasks. Moreover, there are unforeseen
developments that hurt implementation. Think of macro-environmental events, such
as pandemics or economic crises. In addition, there are industry-level uncertainties
such as actions and reactions of clients’ competitors. Deadlines should be conditional
because there can be delays beyond the control of consultants. Therefore,
consultants must build flexibility into their implementation planning. Consultants
cannot be held responsible for the outcomes of implementations. They should only
accept ‘best efforts obligations’, that is, commitments to do their best to get results.
Consultants can provide their services to implementations, but they cannot promise
specific results to be achieved. Despite their best efforts, implementations may fail
because of other reasons.
Consultants cannot be held responsible for the outcomes of implementations
Provision of resources
As discussed before, implementations of solutions require people and budgets.
Consultants need to team up with client people: preferably ‘champions of change’.
These are client managers and professionals who can get their organization moving.
Consultants should select the team members with care. They should not simply
accept the candidates clients are proposing. Clients may suggest employees who are
available but who are not necessarily suitable for the implementation team. The
client’s best people are always in high demand and already busy.
SETTING UP AN IMPLEMENTATION OFFICE
Consultants can set up implementation offices on behalf of steering committees.
Steering committees include top managers from the client and the partner of the
consultancy firm. Implementation offices are more than project management offices.
The latter tracks key performance indicators of projects, monitors progress, and
reports to top management. In contrast, implementation offices have more significant
roles than ‘checking the boxes’. They are responsible for implementation and must
manage these trajectories. Client top management empowers the implementation
office to steer the implementation if the office sees the need to do so. Therefore,
implementation offices can intervene in implementations, challenge stakeholders, and
impose sanctions on them if necessary. In implementation offices, consultants can
work together with client employees. The office heads report directly to the steering
committee.
Implementation offices decompose implementation plans into workstreams which are
logical groupings of initiatives or actions. A team of junior consultants and client
professionals led by a senior consultant or a client manager runs a workstream.
Figure 12.1 shows a simplified example of the governance of an implementation. The
number of workstreams per project and the number of initiatives per workstream may
vary in practice.
Figure 12.1 A simplified example of the governance of an implementation
SCHEDULING THE ACTIONS
Parallel projects
Consultants must estimate how long it will take to complete implementation tasks. In
doing so, they must account for the availability of resources, in particular client
employees. As indicated before, these employees spend a significant part of their
time on the day-to-day operations that must also continue. Consultants must carefully
check whether there are parallel projects that also take up the scarce time of the
employees concerned.
The critical path of actions
Implementation offices are responsible for the implementation planning. A crucial
concept in planning is the critical path, which is the most extended sequence of
dependent actions. Therefore, the critical path determines the shortest possible
duration of an implementation. The implementation office can identify the critical path
in the following steps:
1. List all implementation actions (actions A, B, and C in the example of Figure
12.2).
2. Assess the duration for each action. Estimate how much time it will take to
complete an action (see the numbers between brackets in Figure 12.2).
3. Identify any dependencies between actions. Can specific actions only start when
other activities have been completed? For example, before client can introduce a
new customer service (action B), a new IT system must be ready (action A). In
Figure 12.2, B depends on A. C (developing a promotion campaign for the new
service) is not dependent on any of the other actions.
4. Determine which actions are critical (cannot be delayed without making the
project longer) and which activities have a ‘float’ (can be delayed without making
the project longer). Actions A and B are critical as they determine the duration of
the project: 8 weeks. Action C has 8 weeks for completion. As C’s duration is
only 2 weeks, C has 6 weeks left – this is the float.
5. Define the sequence of critical actions as the critical path. The series of A and B
is the critical path.
Figure 12.2 A simplified example of a critical path
The planning of the actions
Implementation offices must plan all actions for solution implementation. Consultants
distinguish three essential guidelines for such planning.
1. The critical path activities are the priority. Offices must plan and monitor the
critical path with the utmost care.
2. Some activities require pilots before scaling up. Offices must reserve enough
time for these pilots before planning roll-outs.
3. Every project needs quick wins to boost morale. Offices must plan quick wins as
early as possible in the implementation trajectory.
Implementation offices can use Gantt charts for planning implementation actions.
Consultants will use software for this. Figure 12.3 provides an example for the actions
of Figure 12.2.
Figure 12.3 A simplified example of a Gantt chart
Project milestones
Implementation offices must define project milestones which are important points in
the progress of projects. A milestone can be the expected completion of a major
project deliverable, such as an IT system. But formal reviews (for example, by the
project steering committee) can also be milestones.
Project planning
Consultants distinguish between three forms of project planning:
1. Linear projects: There is a clear sequence of activities. There is a (long)
preparation or planning phase before implementation starts. There may be a
sequence of implementation scale: consultants start on a small scale with pilots
and subsequently scale up the implementation efforts.
2. Iterative projects: Planning and implementation activities are intertwined in
cycles. The planning phase is relatively short, and implementation serves as a
test. The lessons of the practical test inform a new planning phase. A popular
example is the ‘agile process model’, which is based on predefined cycles of
planning and implementation (the so-called ‘time boxes’). Figure 12.4 shows an
agile process model.
3. Parallel projects: The project consists of various parallel activities flows. It may
be a portfolio of independent activities. If there are dependencies, then
consultants must coordinate these activities.
Figure 12.4 An agile process model
MANAGING AN IMPLEMENTATION
Before kick-off
Consultants will (first) concentrate on the client’s top management team. They will
conduct workshops to align the client’s top managers around the objectives of the
implementation process. Next, consultants will enable the top managers to lead their
organization into the implementation process. These managers should act as role
models for their organization and lead by example.
The project kick-off
The clients’ top management should introduce the implementation to their
organization. They should tell a compelling change story to the middle and lower
managers and the frontline professionals. Suppose the implementation concerns a
solution to a problem. In that case, the client’s leaders should create a sense of
urgency in their organization. But they should also energize these stakeholders. The
top managers should envision the future of the organization after implementation. By
creating an aspiration, these managers can motivate the stakeholders to commit to
the implementation. The top managers should develop understanding and conviction
among their employees. It is vital that these stakeholders feel included in the solution
implementation. The implementation must be a joint effort of all relevant stakeholders.
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Empower the lower managers and frontline employees
Implementation offices should enable middle and lower managers and frontline
professionals to conduct the implementation actions. Therefore, implementation
offices should invest in these people. For example, these people may need new
skills: upskilling. The consultants of the implementation office may provide training
and coaching to develop these client employees. Implementation offices may also
have to adapt the client’s organizational processes, structures, and systems to
support the implementation. Moreover, offices should empower internal stakeholders
who lack the mandate to act. Implementation offices may have to change the
organizational structure to empower these stakeholders. These offices may have to
invest in the improvement of the client’s culture. The present culture may be
inappropriate for the new solution. For example, the client’s culture may be riskaverse, whereas the new solution requires a considerable tolerance for failure. Role
modelling by client top management can play an essential role in changing the
culture. Managers should not just tell people to change but also lead by example. Top
managers should walk the talk.
Starting small and then scaling up
Consultants will start implementation on a small scale. First, they will do ‘pilot tests’ of
solutions. These are small-scale experiments to see whether solutions work.
Consultants learn from the test results. Based on these outcomes, they may have to
adapt solutions and/or implementation plans. This is not a problem at this stage of
implementation, at least not compared to the later stages. This early adaptation
prevents significant issues at later stages. After successful pilots, there is enough
confidence in the solutions and implementation plans.
Now implementation offices are ready to ‘scale up’ implementation. They will roll out
their plans on a large scale. The implementation office will only roll out the
implementation plan when there is enough certainty that it will work. Otherwise, the
risks will be too much. Successful pilots reduce the uncertainty about the plans.
The implementation office will only roll out the implementation plan when there is
enough certainty that it will work
Communicating
During the implementation, the implementation office regularly communicates to the
client organization. These are frequent, for example, weekly updates to keep relevant
internal stakeholders informed and involved. Ideally, the client’s most senior
managers will communicate the messages. They show the progress of the
implementation. These leaders recognize and reward the stakeholders who perform
well in implementation and celebrate the implementation successes. At the beginning
of the implementation, offices need some quick results. These are the so-called ‘early
wins’. These successes are required to motivate the stakeholders. Early successes
give confidence in the implementation plan.
Monitoring progress
Implementation offices must track and manage the implementation projects. The
process may look as follows:
1. Collect status information
2. Plan and take adaptive actions when necessary.
Offices need information about the project schedule status: progress, costs, and
timing of project activities. Figure 12.5 presents a simplified example of a Gantt
tracking chart, which compares the timing according to the initial project plan and the
actual timing (for completed activities) or the expected timing (for ongoing activities).
Figure 12.5 A simplified example of a Gantt tracking chart
Moreover, offices need updates on any open issues that arise during implementation.
Furthermore, they require information about any risks. Consultants use metrics that
indicate the status of risks. Implementation offices also need to decide how often
status information should be collected and who should do that.
Consultants may create a performance management structure for the implementation
process. Offices will identify a set of key performance indicators that provide a good
picture of the progress of the activities. Subsequently, offices track these indicators to
keep the score of these activities. Consultants will use project management software
for this. A performance management dashboard may present these scores (Figure
12.6). Implementation offices check the boxes, identify any problems with progress,
and develop solutions for these issues.
Figure 12.6 A simplified example of a performance management dashboard
Intervening
Implementation offices must follow through. They must keep people accountable for
delays of activities and other issues during implementation. Offices should not
tolerate missed deadlines. Consultants will frequently organize standardized
meetings with the people who conduct the implementation actions. These are the
workstream leaders and their teams. The head of the implementation office leads
these discussions. A representative from the client’s business control department will
also be present for the reviews. The participants discuss the implementation progress
and review the commitments that workstream leaders and their teams made in the
previous meeting. Have these commitments been realized? If not, then they will
discuss any problems that explain why the promises were not met. The workstream
leaders will also update the implementation office about any relevant developments
that (may) impact the implementation. Finally, the workstream leaders will make
commitments for the next period in front of peers. Such public commitments increase
the pressure on workstream leaders to keep their promises. These meetings act as a
moment of truth for the workstream leaders and thus provide the necessary
discipline. Frequent and regular meetings, weekly or more often, create a rhythm for
the stakeholders.
Finally, the workstream leaders will make commitments for the next period in front of
peers
Problem-solving discussions
Workstream leaders may have various problems. There may have been delays of
activities and deliverables. The performances delivered may not meet expectations.
For example, the quality of the deliverables may be insufficient. Moreover,
workstream leaders may have exceeded their budgets. If workstream leaders have
not achieved their commitments, they must discuss the underlying problems with the
implementation office. Together with the implementation office, they will identify the
problem causes. Next, they will develop solutions for these problems. The
implementation office is empowered to make decisions about these solutions. In
general, one has three options in case of implementation problems:
Repair or repeat the failed project activity and continue with the original
implementation plan.
Adapt the original implementation plan (if the plan caused the problems): adapt
resources, capabilities, activities, or objectives.
Abandon the implementation (if adapting the plan will not help solve the
problems). This is the last resort in case of serious problems that cannot be
resolved.
Learning and adapting
No plan survives the confrontation with reality (under uncertainty). Under uncertainty,
implementation cannot be a linear process. Therefore, consultants implement
solutions using a loop-based process of learning and adapting. We distinguish
between two loops (see Figure 12.7). There is a loop during the pilot phase. A pilot’s
failure means that the implementation office needs to adapt the pilot until it is
successful. After a successful pilot, the implementation office will roll out the plan.
The monitoring of the progress leads to another loop. Suppose the performance of
the implementation activities is according to plan or exceeds it. In that case, the
workstream leaders and their teams can continue to conduct the planned activities.
But suppose the performance falls short of the goal. The implementation office,
together with the workstream leaders and their teams will need to analyse the
problem and adapt the plan.
Figure 12.7 Implementation is an iterative process
Scope creep
Scope creep is unauthorized and uncontrolled expansion or other changes of the
project scope. These changes mean extra work for the consultants. Poor preparation
may cause creep.
Consultants may underestimate the project challenges.
Opportunistic clients try to get extra services of consultants for free.
Stakeholders may not understand or misinterpret the project scope because of a
lack of communications and the absence of project charters.
Even in the case of thorough project preparation, consultants cannot completely
avoid scope creep. Unforeseen events and developments can also cause scope
creep. In addition, the priorities and wishes of the client’s top managers may change.
As a result, consultants must now carry out actions that were previously irrelevant or
unimportant for the client.
What may go wrong in the implementation
Implementation offices typically need to adapt their plans because they cannot predict
the future. The future always turns out differently than people think. That is why
implementation offices cannot plan implementations a hundred per cent. But that
does not relieve consultants of the need to think about preparing for implementation.
Plans of action are part of this preparation but consultants do not have the illusion
that their plans can always and completely be implemented. Consultants do not stick
to their plans when they see these plans are not working. Consultants are flexible and
open to signals that indicate that their plans cannot be (fully) implemented. Then
consultants have the flexibility to adapt their plans to the new reality.
Action point
Provide the necessary flexibility and a backup plan because your implementation
plan will never go as you hope.
Double tasks
An important reason why implementation plans cannot be implemented is that
implementation tasks are in addition to the regular functions of the client’s frontline
professionals and managers. Implementation of solutions comes on top of running
the business. ‘During the renovation of the store, sales must continue as usual.’
These double tasks put a lot of pressure on the client’s workforce. Under this
pressure, mistakes can easily be made. Overloading staff can also mean that
implementation actions are not entirely performed, too late or not at all. Exemplary
implementation plans consider the double burden on client’s employees. Either
employees get help from external actors, such as consultants and/or other external
service providers, or implementation offices adjust the deadlines to the available
resources. Such plans are feasible for the client’s employees.
Stakeholder problems
Stakeholders can openly or secretly resist implementation of solutions
Despite efforts to align stakeholders, these people may resist. Stakeholders can
openly or secretly resist implementation of solutions. In the latter case, they say in
public yes to the solution execution, but their actions show the opposite. This
resistance may arise from disagreement about the solution and/or the implementation
plan. People may be opportunistic and follow their own, conflicting, agenda. However,
some stakeholders do not follow implementation plans because they are cocky or
stubborn. They just go their own way. These people do not care much about the
implementation project but do what they want. Other stakeholders start the
implementation well but gradually get distracted by things other than the
implementation plan.
Resistance
First, consultants must identify the resisting stakeholders. Identification can be
challenging if the resistance is covert. Subsequently, consultants must confront the
resisting stakeholders with their underperformance. These stakeholders should be
made aware of their responsibilities and held accountable for their disappointing
results. Consultants can investigate what causes the resistance. Depending on the
causes of resistance, consultants in collaboration with client management can take
different actions to remedy the resistance. An attempt can be made to get the
resisting stakeholders on board. Consultants and the clients can try to align these
stakeholders. But in some cases, stakeholders must be confronted with the negative
consequences of their resistance. Implementation offices must have a mandate to
impose negative sanctions on resisting stakeholders.
The implementation plan does not work
Poor implementation results can also stem from wrong or inadequate implementation
plans. The plans are simply not good enough. Plans can fall short in many ways. For
example, implementation offices may have overlooked certain aspects of
implementation or have not taken adequate actions. Another common mistake is poor
communication with stakeholders. A third example is that stakeholders are not
carrying out their implementation actions well enough because of insufficient
cooperation between the involved parties.
Another common mistake is poor communication with stakeholders
If implementation plans do not work, implementation offices attempt to improve these
plans. They must fix the flaws in the plans. Consultants may have to improve the
communication to stakeholders or do a better job at coordinating the implementation
actions and coaching the relevant stakeholders.
The solution does not work
Implementation can go according to plan, but the results for the client can still be
disappointing. A reason for this can be that the solution is simply not good.
Remember that the solution is based on assumptions about the future. At the time of
decision making, the future is unknown or at least uncertain. Therefore, clients decide
under uncertainty. When clients implement the solutions with the help of consultants,
it may become apparent that one or more of the solutions’ assumptions are incorrect.
Things have turned out differently than consultants expected. Examples are that
customers react less positively than assumed, or competitors react more
aggressively to the client’s solution than expected.
Misjudging assumptions
Consultants may have misjudged certain conditions of their recommendations. Even
if consultants systematically assess the assumptions of their solution hypotheses,
they cannot determine with certainty that these assumptions are correct. After all,
assumptions are about beliefs about the future. Misjudging such assumptions is not a
culpable and avoidable mistake but the inevitable consequence of uncertainty.
Flawed solutions present severe problems for the consultants. They need to analyse
why their solution does not work. The cause can lie in the development of the
solution, but it can also lie deeper. It may be that the problem analysis was not good
enough. In the latter case, consultants must redo the problem analysis. Based on the
improved problem analysis, consultants must develop new solutions. These are
serious setbacks that cause significant delays and budget overruns.
Unforeseen events and developments
Other reasons for flawed solutions are new unforeseen events and developments.
After developing the solution and the implementation plan, something happens that
undermines the solution and/or plan. It can be something within the client company,
within the client’s industry, or in the macro environment. An example of an internal
harmful event is the unforeseen departure of a couple of the client’s most talented
employees to establish a new company. Consultants could not foresee these events
or developments. These unforeseen developments make their analysis of the
problem incomplete. Due to the incomplete problem analysis, their solution may be
ineffective. The consultants must expand the problem analysis with the new
developments. Then they must go back to the drawing board to design a new
solution. Clients will be disappointed and consultants will have to explain that this was
an unavoidable mistake and that they are not culpably guilty.
Bad luck
Implementations can also go wrong due to bad luck. Consultants can have everything
well prepared, but things can simply go wrong. Murphy’s law says that anything that
can go wrong will go wrong. Consultants can anticipate inevitable setbacks and bad
luck by including buffers in their plans. This makes the plans a little less efficient, but
their robustness increases.
Reinforcing and sustaining the change
A well-known risk of organizational change processes is that lower managers and
frontline professionals concerned tend to revert to their old behaviour over time.
During implementation projects, participants are motivated. But after the
implementation projects have ended, and client leaders’ attention has shifted to other
matters, lower managers and frontline professionals get room to return to their
comfort zone and revert to old, familiar behaviour. To reinforce and sustain the
required behaviour of lower managers and frontline professionals, implementation
offices anchor solutions in the clients’ structure, systems, processes, and culture. For
example, they set performance targets, make people accountable for realizing these
targets, and introduce regular performance reviews, whereby stakeholders receive
(monetary and non-monetary) rewards for good performance.
EVALUATING A PROJECT
The solution’s impact
After solutions have been implemented, implementation offices measure
improvements of clients’ performance. Have performance gaps been closed, or are
they closing? After all, clients’ problems were performance gaps. Implementation of
solutions should close gaps but closing gaps can take a long time after
implementation has ended. For example, compare cost reductions with revenue
growth solutions. If consultants cut clients’ costs, they directly affect the clients’ profit.
But suppose consultants have solutions for growing clients’ revenues. Then it
generally takes more time for results to become visible. Take the example of
company X. Developing a new basic model takes time. X needs to build new
dedicated production lines. Subsequently, production of the new model must start
which can cause new problems and therefore take time. After that, X must market
and sell its new model. Before customers ‘en masse’ embrace the new model and
revenue increases, the necessary time has passed.
The consultants’ impact
The impact of consultants is not the entire performance improvement of their clients.
Consultants must ask themselves: What would clients have achieved without our
advice and assistance? Ideally, consultants would like to compare their clients’
performance with and without the use of consultants. Laboratory experiments where
researchers can work with control groups are not feasible in consultancy. There are
no objective methods to measure the added value of consultants, but consultants
may ask client management and other relevant stakeholders for their judgement.
Valuation: How much do client management and other relevant stakeholders
value the contributions of the consultants? The value of consultants is their
contributions to client performance minus the consultants’ costs.
Satisfaction: How satisfied are client management and other relevant
stakeholders with the work (solution development and implementation) of the
consultants?
The consultants’ added value is not limited to clients’ performance improvements. It
extends to the development of the client’s knowledge and capabilities. For example,
client employees who have worked closely with consultants may have learned new
knowledge and skills from these consultants. Evaluation of consultancy is not only
about consultancy projects’ outcomes but also about inputs and processes. Have
solutions been developed and implemented on time and within budgets? Are client
management and other relevant stakeholders satisfied with the process and the
collaboration with the consultants?
Action point
Determine in advance how clients will evaluate projects.
CLOSING A PROJECT
Handover to client
During projects, consultants have documented their work well: the project file. After
project completion, consultants transfer their documentation of analyses and data to
clients. Clients now have all the project materials. Consultants instruct clients on how
to use these materials. After consultants have left, clients must be able to
independently continue with the implemented solutions. Consultancy is a project with
a beginning and an end. After the closure of projects, clients should not remain
dependent on consultants.
Often consultancy partners and client managers will celebrate successful completions
of projects. Consultants and client employees on the project teams will also have
festive closings of projects. After hard work, it is time to relax. Such a finish can vary
from a drink or dinner to a social event. Consultants also use these events to publicly
acknowledge special achievements and reward those involved.
Lessons learned
Knowledge management system
Back at the consultancy office, the partner, the manager, and the consultants on the
team will have a debriefing meeting. They will discuss what went well and what
should be improved. They learn from the experience and write down the lessons to
share with colleagues within the consultancy. Every consultancy project may add
insights to the consultancy firm’s knowledge management system. Of course,
consultants will remove any sensitive and secretive client information. Project
descriptions will be anonymous so colleagues should not be able to recognize these
clients.
Sharing knowledge
The anonymized project information is made available in the consultancy firm’s
knowledge management systems. Other consultants working on similar projects can
search these systems and benefit from the relevant information. This sharing of
information is why consultants specialize in specific client sectors and functional
practices. Specialization allows them to learn from previous projects. The more
projects are similar, the more relevant is the knowledge and experience of previous
projects. Firms can share this knowledge and experience via IT systems but are via
personal networks. Consultants can search the database of projects and topics but
also contact the experts in the firm.
New projects
Consultancy partners who start new projects will first consult knowledge management
systems and fellow partners who have done similar projects before. Partners may
already know these colleagues. If consultancy firms are extensive, partners consult
an overview (stored in the knowledge management system) where the experiences of
the various partners have been recorded. In this way, partners can quickly identify
and contact the relevant colleagues. Lessons and other insights from previous
projects give partners a flying start with new projects. Partners do not exchange
sensitive and secretive information about clients to other clients with conflicting
interests because that would be unethical.
Performance appraisals
After projects, managers will evaluate the performance of the consultants. Similarly,
partners will assess the managers. Performance appraisals may reveal that
managers and consultants need to work on specific aspects. They may need training
and coaching on these aspects.
Performance appraisals play a role in managers’ and consultants’ staffing on
subsequent projects. The development needs of individuals can influence the choice
of the next projects for these persons. People can be deployed on specific projects to
further develop their weak aspects. Of course, the level of the evaluation also plays a
role in the commitment to subsequent projects.
Grades
Recall that, on a (five-point) scale, the grades range from 1 (outstanding
performance) to 5 (poor performance). Managers and consultants with a 1-grade will
be in high demand for new projects. All partners want to work with these outstanding
people. These excellent managers and consultants often move from project to project
without interruption. People with a 2-grade, and even more so, those with a 3-grade
are less popular with partners. These people may therefore have to wait a little longer
for new projects. In the meantime, they must do work in the consultancy office. For
example, they must write documents for the knowledge management system or help
with quotations for new projects. Managers and consultants with a 4 or 5 grade will
no longer be staffed on new projects. There is no longer any place for these people
within the consultancy. Consultancy firms will guide these people to a new position
outside the organization.
The management consultancy cycle revisited
The partner’s role
While managers and consultants are no longer in contact with past clients, partners
will keep in regular touch with these clients. This is the role of the partner. While
managers and consultants focus entirely on a single project and a single client,
partners will divide their attention over several projects and clients. After the closure
of projects, partners will keep in touch with these clients.
The partner’s responsibility
Maintaining the relationship with past clients is an essential responsibility of partners.
The work of partners is not about selling a single project to clients but building a longterm relationship with clients. By developing relationships with clients, partners aim
for repeat selling to these clients. Selling another project to a company that knows the
partner already and is satisfied with the previous project outcomes is much more
efficient than trying to convince a company that has no experience with the partner or
may not even know the partner’s consultancy firm.
The partner’s relationship with the client
Therefore, partners continue to show interest in the development of past clients.
Partners will share new knowledge and insights with these clients from time to time.
The consultancy’s marketing department will prepare those materials. Partners can
share this knowledge in personal conversations, but they can also send publications
to clients. Consultancy firms may issue print and digital newsletters, reports, and
books. Due to the warm relationship between past clients and partners, these clients
are more likely to call these partners again when new problems or opportunities
emerge. This is the cycle of consultancy. Chapter 5 introduced the process. For your
convenience, we repeat the figure.
Figure 12.8 The management consultancy cycle
Action point
Spend more time maintaining relationships with past clients than developing new
clients.
CONCLUSION
Consultants can manage solution implementation on behalf of clients. To do so, they
may set up implementation offices. Managing implementation cannot be a linear
planning process because no plan survives the confrontation with reality under
uncertainty. Therefore, managing implementation is foremost monitoring progress,
learning from (the inevitable) problems, and adapting implementation plans when
needed. As a result, implementation is a loop-based, iterative process.
After implementation, projects end. But project closure is not the end of the client
consultancy relationship. Partners do not want to sell one-off projects but prefer to do
repeat business with clients. They aim to maintain the management consultancy
cycle.
Running Case
RESISTANCE AGAINST THE SOLUTION
IMPLEMENTATION
NoSlideshow has set up an implementation office to implement the ‘A-Focus’
solution. The consultants have developed a compelling change story. Keyboard’s
CEO Josh has worked very hard to get this message across the company. Although
most employees were enthusiastic about the implementation, not everyone was
convinced.
Several managers, including a top management team member, find it very difficult to
distance themselves from the C-customers. These managers do not want to give up
their hard-won revenue and market share just like that. Since Keyboard’s inception,
the focus has been on growing the company to become the market leader. That
meant growth in turnover. Now the consultants come and tell them to focus on
profitability rather than sales growth. This message clashes with their firm belief and
the core values of their company.
The implementation office finds that the progress of the implementation is not going
according to plan. Discussions with the workflow leaders show that most problems
have to do with the resistance of these managers. NoSlideshow-partner Kate
discusses with Josh what to do with this setback. Kate tries to find the root cause of
the opposition by asking Josh the why question every time. Why are these managers
against the solution? Ultimately, Kate and Josh come to the following conclusion. The
struggling managers do not believe that ‘A-Focus’ will lead to sales growth. These
people think that there is a trade-off between growth and profitability. They believe
that Keyboard can either grow or increase its profitability, but not both. It is one or the
other. The managers do not want to give up the growth ambition.
DEVELOPING A SOLUTION
Now that Kate has a picture of the root cause of the resistance, she can work on a
solution. She must convince the opposing managers that it is possible to both
increase profitability and growth. NoSlideshow has previously performed similar
projects for other clients. Growing and becoming more profitable is a paradox as this
combination is challenging. The solution is not to try to grow and increase profitability
at the same time. NoSlideshow has had good results with previous clients doing one
thing at a time. Profitability is first increased. This is achieved by discontinuing lossmaking activities that are hard or impossible to repair. This pruning of the client
organization makes the client healthier and more profitable. From this more
advantageous starting position, it is easier for the company to grow. Kate collects the
performance results of several similar projects and presents these outcomes to
Keyboard’s managers. Figure 12.9 shows profitability at different sales levels, called
the ‘C-curve’ because of its form (it does not refer to C-customers). Kate has also
found a number of these past clients willing to share their positive experiences with
the managers of Keyboard. Kate wants to convince the managers with this approach.
Figure 12.9 The ‘C-curve’
Kate is right. The graphs with the results and especially the conversations with other
clients convince Keyboard’s managers. From that moment on, they contribute to the
successful implementation of A-Focus. The implementation continues without any
significant problems. Josh and his top management team are pleased with the
partnership with NoSlideshow. Kate speaks to Josh regularly to follow the
development of Keyboard’s results. Keyboard follows the curve in Figure 12.9, and
the company then hires NoSlideshow for a long-term growth strategy. Kate has
developed a regular client.
SUMMARY
The chapter began with the division of implementation roles between clients and
consultants. The part of the consultants can vary from limited to extensive.
Consultants typically set up implementation offices. These offices fulfil a more
significant role than project management offices. Whereas project management
offices track, monitor, and report progress, implementation offices also manage
implementation processes. These processes typically follow a staged approach.
Implementations start with pilots. After successful pilots, consultants will roll out the
implementation plan and scale up the implementation efforts. During implementation,
consultants will monitor progress and intervene when necessary. The chapter outlines
what may go wrong in implementation and how consultants can solve these
problems.
After the closure of projects, clients and consultants will evaluate these projects.
Thereby they should distinguish between the impact of solutions and the added value
of consultants. Consultants will hand over all project materials to clients. Back at the
consultancy office, consultants will draw lessons from the project, adding new insights
to the consultancy’s knowledge management system. Besides, consultants and
managers will get performance appraisals. The performance scores have
consequences for their career and staffing on subsequent projects. Consultancy
partners will maintain contact with past clients after the closure of projects. Projects
end, but the consultant–client relationship does not. This is the idea of the
management consultancy cycle.
REFERENCES
This chapter builds on various public sources, including the publications and
company websites of leading consultancy firms.
QUESTIONS
1. The client wants to hire your consultancy firm to implement the solution of
another consultancy. What should you pay attention to?
2. During implementation you discover that the implementation will take a lot longer
than expected. How do you deal with this setback?
3. While the implementation is underway, you discover that a few lower managers
of the client do not want to be cooperative. You have already raised this with the
client, but they refuse to intervene. What should you do?
INDEX
Page numbers followed by f indicate figures.
Accenture, 4, 7, 31, 37f
acquisitions, 53, 70
actual consultancy time, 62
advertisements, for job openings, 103
advice
implementation of, 59
provision of, 5
requiring prescriptive questions, 125
‘advise & activate’ group, 37f, 38, 70
agency group, 37f, 38, 70
agendas, for presentations, 294
agents of change, 321, 326
aggregator consultancies, 37f, 38, 70
agile process model, 34, 331, 331f
AirBnB, 33
algorithms, 19, 35
Alteryx, 228
alumni, 8, 95
Amazon, 33
ambition and energy, 80, 89
analysis results, presenting, 228–229
analysts. See consultant(s)
analytics, 59
annual profit, of firm, 64–65, 65f
Answer-First Problem-Solving model, 162f, 163–164, 163f, 196f,
239, 240f
appearances, 104
appraisals. See performance appraisals
arena, 249
Arthur Andersen, 29, 29n, 31
Arthur D. Little, 28, 30
artificial intelligence (AI), 17, 19, 38, 69
assembler consultancies, 37f, 38, 70
assessment centres, to appraise candidates, 85
asset-based consultancy. See productized consultancy
assistance
without advice, 7
with managers’ implementation tasks, 6
associate. See consultant(s)
audience
convincing, 280
understanding, 274–275
See also presentations
automation, 19, 248
awareness
partners role in creating, 104, 105
of stakeholders, 315, 319–320
Awareness, Interest, Desire, and Action (AIDA) model, 102–103
‘back-to-basics’ strategy, 258
Bain & Company, 37f, 163
BCG, 37f
BCG matrix, 30
benchmark analysis, 203
‘best efforts obligations’, 327
big data, 35, 128, 209–210, 226–227
‘Big Eight’ accountancies, 31
Big Four (Deloitte, PwC, EY, and KPMG), 4
billing multiple, 64
‘Blue Ocean Strategy Canvas’ framework, 203
Blue Yonder, 38
Booz Allen Hamilton, 30, 37f, 44
Boston Consulting Group (BCG), 30, 44
boutique firms, 51
brain consultancy, 16–17, 17f, 34–35, 52
brochures and publications, 103
buddies, 87
budgets
for implementation, 322
project, 302
business
of client, 129–131, 130f
between client and consultant, 4
consultancy, 7
knowledge and skills, 80
manager, 28
opportunity, 184
partners, 131
services, 7
studies, 8
Business Intelligence (BI) software, 227–228
business process outsourcing (BPO), 32
cannibalization and expansion, 217
capabilities
client’s knowledge and, 341
organizational, 321
resources and, 247
Capgemini, 32, 37f
career development
performance appraisals, 91–95
pyramids, 90, 90f
specialization, 91
up-or-out policy, 91
voluntary departures, 95
case interviews, 82, 85
change agents, 321, 326
charts
analyses results with, 228
creating fancy-looking, 289
and messages, 289–292, 290f, 291f, 292f
visualizing qualitative data with, 293, 293f
chief executive officer (CEO), 40
chief financial officer (CFO), 41
chief information officer (CIO), 40
chief operating officer (COO), 40
‘Chinese walls’, 12, 15
client(s)
acquiring/retaining, 102–103
assessing implementation gap, 303–308
business of, 129–131
capabilities of, 131
classes of problems, 134, 135f
company as iceberg, 130f
concerns, 107
and consultants, 3, 3f, 5, 20–21
context, 128–131
critical perspective on, 23
as decision makers, 143–144
definitions of opportunities, 147
demand for implementation, 33–34
developing hypotheses about problem, 195–199
developing trust of, 106–107
digital transformation of, 69
digitization impact on, 32
geographies of, 39, 40f, 43, 44f, 47
handover project file to, 341
identify real problem, 132–135
impressing, 110–111
industry practices, 56–57
interests, 104
issues, 46–47
management, 2
managers, 5–6, 8, 13, 20
mapping of stakeholders with, 138–141, 139f
natural opponents, 317
official/unofficial reasons for hiring consultants, 8–12, 9f,
108, 124
partner’s relationship with, 343
performance objectives, 132–133
potential, 103
as presenters, 284
questions, 122–124
readiness for implementation of solutions, 312–317
responsibility, 2
role of, 5
satisfaction, 103, 115
sectors, 40f, 42–43, 43f, 47
stakeholders’ alignment with, 138–141, 316
valuation, 113
See also problems; specific entries
co-creation, 21, 38
Cognizant, 37f
Coleman’s Bathtub, 157, 237, 237f, 306
collective exhaustiveness, 161
comparison analysis, 204, 205f
compensation costs, 63, 64f
competition, 112, 130, 234
competitive intelligence, 213–214
competitiveness, 203, 205f, 220
complication, 275
composition/decomposition, 157–158, 237, 306
computer power, growth of, 226
computer simulations, 215–216
computers, 36
conflicts, 316
political, 11
stakeholders, 140
consistency, of solution, 238, 238f
constraints, 145
constructive criticism, 216
consultancy. See management consultancy; specific entries
consultancy-as-a-product, 19, 20f, 71
consultancy-as-a-service, 19, 20f, 71
consultancy corporation, 67–68, 69, 71
consultant(s)
approaching for advice and assistance, 6
BI software for, 227–228
and client, 3, 3f, 5
communication with clients and stakeholders, 298
cost/expenses, 113–114
critical thinking, 124–126
digital marketplaces for, 37
digital transformation of, 70
evaluation of work, 225–226, 340–341
functional/critical perspective on, 10
identifying issue, 5
independence, 3
internal, 4
as knowledge brokers, 12
learning from, 19–20
models for developing solutions, 239–243
multiple reasons for hiring, 13
official/unofficial reasons for hiring, 8–12, 9f, 108, 124
personal reasons for hiring, 13
problem-solving models of, 162–168
in professional partnership, 54
profile of, 111
projects for, 4
reasons for hiring, 8–13, 9f
reputation/learning/talent, 115
responsibilities, 90f
role in implementation, 326–328
solution development, 10
task, 54
unethical business practices, 12
work of, 88–89
works plan for, 205–206, 207f
See also management consultants
consultative approach to selling project, 106–109, 106f
envisioning the solution’s value, 109
farming and hunting, 106
identifying the problem, 108
trust, developing, 106–107
understanding the situation, 107–108
content consultation, 15
contingency fees, 113
contractors, 37
corporate social responsibility (CSR), 132, 313
corporate structure, 42, 42f
cost/expenses, for projects, 113–114
Covid-19 pandemic, 134
creative thinking, 251–252
critical path, of actions, 329, 329f
critical thinking, 124–126, 148–149, 258–259
criticism, 216
CRoss-Industry Standard Process for Data Mining (CRISP-DM),
227
culture, 61, 89, 247
customer needs and profitability analysis, 205
cyber-physical systems, 32
data
analysts, 59, 216
mining, 128, 227
requests, 209
science, 36, 226
data analysis, 219–226
competitiveness analysis, 220, 221f
cost analysis, 223–224, 225f
evaluation of consultants’ work, 225–226
explanation, 221–223
profit impact of revenue gap and cost gap, 219–220
visualization, 221
data-analytical thinking process, 226–228, 227f
data collection, 208–214
competitive intelligence, 213–214
conducting, 54
desk research, 209–210, 213
digitization, 70
field research, 208, 213–214
Internet of Things (IoT), 210
interview, 210–212, 214
observation, 212–213
order of actions from issue to, 201, 201f
without proper problem definition, 128
sources of data, 208, 208f
surveys, 212
unbalanced approach on, 127
data creation
accepting/rejecting solutions, 260–261
approaches, 214–218
estimating, 216–218
experimenting, 215
judging, 215
simulating, 215–216
‘day in the life of’ (DILO) studies, 212
decision
constraints, 145
criteria, 144
makers, 143–144
decision making
client responsibility, 2
under uncertainty, 263–264
decomposition
alternative, 160
analysis of competitiveness, 203, 204f
collective exhaustiveness, 161
and comparison, 203
and composition, 157–158, 237, 306
of education programs, 217, 217f
example of MECE, 159–160
with help of internal stakeholders, 310
and implementation, 306, 323
of key question into sub-questions/issue tree, 166, 166f
mutual exclusiveness, 160–161
principles of, 159–160, 160f
problem, 157–158, 165, 166f
of process component of operational solution, 247–248,
247f
of profit gap into sub-gaps, 169–170, 170f
of solution hypothesis into assumptions, 258–259, 259f
of strategic implementation, 309
delays, 21–22
Deloitte, 37f
Delphi method, 215
descriptive questions, 122
design thinking, 38, 71, 239, 240f, 241
desk research, 209–210
big data, 209–210
competitive intelligence, 213
data requests, 209
unreliable data, 209
development programs
for managers and partners, 88
See also career development; learning and development
digital disruption, 33
digital marketplaces, for consultants, 37
digital transformation
of clients, 69
of consultants, 70
need for, 32
digitization
impact on clients, 32
impact on management consultancy, 34–38, 69–72
of knowledge, 35, 57
discussion groups, 211
diversity and inclusion, 81
‘do-it-yourself’ version of consultancy, 15
doctor role, 15
‘doctor–patient consultation’, 15
double tasks, 337
dress codes, 104
driver analysis, 203
earnings, 77
EdenMcCallum, 37
efficiency experts, 28–29
80/20 rule, 173, 205
Electronic Data Systems (EDS), 31
emotions, 123–124
estimation approach, 216–218
Europe
IT consultancies in, 32
management consultancies in, 30
executive directors, 68, 69
expenses, 62, 77–78, 114
experience
benefits of, 128–129
work, 80–81
experimentation, 215
expert role, 13–15
explanatory questions, 122
explicit knowledge, 58
external stakeholders, 137, 138, 210, 313, 314f
critical, 314f
readiness of, 317
EY, 37f
Facebook, 33, 210
fact-based analysis, 158, 214–218
farming and hunting, 106
fees, project, 112–114
field research, 208, 208f, 213–214
financial consultancy, 41, 41f
financial funds, 322
financing, of consultancy, 71
firm(s)
annual profit of, 64–65, 65f
boutique, 51
functional practices in, 57
hybrid, 72
versus individual, 52
infrastructure, 60
marketing of, 101–105
multi-divisional, 68
one-person, 55
partners of, 101
types, 7
value chain of, 60, 60f
See also management consultancy firms
fit interview, 83–84
fixed sum fee, 62
flat fee, 114
flywheel of management consultancy, 114–118, 115f
negative reinforcement, 117–118
positive reinforcement, 114–116
Fourth Industrial Revolution
client demand for implementation, 33–34
digital disruption, 33
digitization of knowledge, 35
Internet, 32–33
need for digital transformation, 32
productization, 35–36
and productized consultancy, 32–38
rise of gig economy, 37
strategic groups, 37–38, 37f
free-market capitalism, 47, 49
freelancers, 37
Friedman, Milton, 133
functional practices, in consultancy firms, 57
functionalist/critical perspective, on consultancy, 20–23
Gantt charts, for planning implementation actions, 330, 330f
General Motors, 29
generic solutions, 245, 267
gig economy, 33, 37
GLC, 37
globalization, 47
good solutions, 238–239
Google, 210
grading categories, in appraisals, 92–95, 343
graphics, 59
grey hair consultancy, 17f, 18, 34–35, 52
group meetings, 211
grow-or-go policy. See up-or-out policy
Guidepoint, 37
hard selling, 106
‘high-tech’ offerings, growing share of, 42
‘high-touch’ consultancy, 38, 42, 72
hired hand consultants, 16
human resource management (HRM), 53, 60
hunting/farming, 106
hybrid consultancy firms, 72
hypotheses, about client’s problem
developing and testing solution, 257–260
developing possible explanations, 195–199
evaluating and prioritizing possible answers, 198–199
importance and likelihood of possible answers, 197–198
hypothesis testing, designing analyses for, 200–205
developing and testing problem hypotheses, 199–201
examples of analyses, 205, 205f
order of steps, 201–205
basic forms of analysis, 203
comparison analysis, 204, 205f
decomposition analysis, 203, 204f
frameworks, 203–204
from issue to data collection method, 201f
structured problem-solving, 202, 202f
IBM, 30, 32, 37f
implementation
actions, 321–322
for creating awareness, alignment, and ability of
stakeholders, 319–321, 319f
critical path of, 329–330, 329f
Gantt charts for planning of, 330, 330f
planning, for solution, 330, 330f
prioritizing, 311, 311f
scheduling, 329–331
of advice, 59
assessing client’s readiness for, 312–317
assistance, 6
backup plan, 337
bad luck and, 339
budgets for, 322
client demand for, 33–34
closure of projects, 341–344
consultants’ role in, 326–328
depends on organizational capabilities, 321
evaluation of projects, 340–341
facilitating, 325–347
gaps (operational/strategic), structuring, 308–310
governance example of, 328, 328f
following inclusive approach, 320
internal and external stakeholders, 313–317
as iterative process, 336f
linkages between strategic and operational gaps, 308, 308f
‘make or buy’ decision about, 321
managing, 331–339
mapping stakeholders in, 312–313, 312f
misjudging assumptions, 338–339
need for stakeholders, 312–313
operational solutions, 303–305
planning, 317–322, 318f
poor communication with stakeholders, 338
preparing for, 300–324
problems in the process, 337–339
readiness of stakeholders to, 314–317, 315f
reasons for flawed solutions, 339
setting up project, 301–303
of solutions, 312–317
solutions’ assumptions, 338
staged approach to, 318–319
stakeholder problems, 337–338
strategic solutions, 305–306
structured approach to, 303, 303f
success measures of, 301
unforeseen events and developments, 339
‘W-model’ of repeated decomposition and composition,
306–307
implementation offices
communicating to client organization, 332–333
critical path, in planning, 329–330
defining project milestones, 330
flexibility to adapting plans, 337
improving communication, with stakeholders, 338
intervening, 334–336
learning and adapting, 336
measuring performance improvements, 340–341
monitoring progress, 333, 334f
planning of actions, 330
problem-solving discussions, 335
providing training and coaching, 332
reinforcing and sustaining the change, 339
resisting stakeholders, 338
‘scale up’ implementation, 332
scope creep, 336
setting up, 328
incorporated partnership, 52
independence, consultant’s, 3
Indian IT consultancies, 32
indirect processes
for developing operational solutions, 249–256, 250f
for developing possible solutions, 241, 243
indirect support, 59
industrial engineers, 28–29
information technology (IT) consultancy, 30–32
‘Big Eight’ accountancies, 31
European and Indian IT consultancies, 32
new entrants of, 30–31
offering, 40–41, 41f
technology and business process outsourcing, 32
in value transformation, 42
Infosys, 32
innovation, 57, 69
intangible results, 21
intellectual abilities, 79
intelligence
artificial, 17, 19, 38, 69
competitive, 213–214
inter-personal interaction qualities, 80
inter-personal performance, 84, 88
interest
conflicting, 316
in consultant’s services, 103
creating, 104–105
internal consultants, 4
internal stakeholders, 137, 310
ability of, 316–317
alignment of, 316
awareness of, 315
groups of, 313, 313f
readiness of, 314–317, 315f
Internet, 32–33, 35, 37
Internet of Things (IoT), 210
interviews
agendas, 211–212
case, 82, 85
competitive intelligence and, 214
data collection, 210–212
discussion groups, 211
fit, 83–84
preparation, 211
three rounds of, 85
See also recruitment process
introductions/starting positions, in presentation, 275, 275f
IS/NOT list, creating, 301
‘issue trees’, 166
‘issues’, 165, 166
iterative projects, 331
judgment, 215
junior partner, 90, 90f
Kennedy Research Reports, 37, 40, 41, 42
key stakeholders, 136f, 145
key value products, 232–233
knowledge
brokers, 12, 14
digitization of, 35, 57
explicit, 58
management system, 342
sharing, 342
and skills, 80
tacit, 18, 35, 58
KPMG, 37f
lead generation, 101, 106
leadership
client, 327
developing codes for professional conduct, 61
skills, 321
team, 60, 69
thought, 57
lean organizations, 34
learning and development, 60
mentors and buddies, 87
offsite training, 86
on-the-job training, 86–87
onboarding program, 86
practice area networks, 87
programs for managers and partners, 88
learning curve, 77
legitimation, 10
lifestyle, 79
linear projects, 330–331
LinkedIn, 93
M-form reorganization, 29–30
mainframes, 30
Maister, David, 16
make-or-buy decision, 8, 321
Managed Professional Businesses (MPB), 67–69
innovation in, 69
leadership team, 69
multi-divisional firm, 68
organizational chart of, 68f
partnerships versus, 102
shareholders, 67–68
managed services provider (MSP), 32, 41, 67, 71
management consultancy
advice, 5
birth, as result of Second Industrial Revolution, 28–30
broadening of, 35, 35f
business consultancy, 7
business services, 7
categorization of consultancy offerings, 41–42
characteristics of, 2–5
critical perspective on, 22–23
defining, 2–7, 6, 25
digitization and, 34–38, 69–72
firms types, 7
flywheel of, 114–118, 115f
forms of, 16–20, 17f
functionalist perspective on, 20–23
implementation assistance, 6
largest firms, in 2008/2018, 44, 45f
offering of, 40–42, 42f
and other services, 7f
people- and asset-based, 36, 36f
performance objectives of clients, 132–133
phenomenon, 1–26
presentations importance in, 271–272
‘productization’ of, 18–19, 35–36, 42, 70–71
reasons for considering, 78
reasons for hiring consultants, 8–13, 9f
results of, 20–23
revenue by offerings, 43f
setting up, 52, 102
strategic groups of, 37–38, 37f, 70
three critical dimensions of, 39–43, 40f, 56
management consultancy cycle, 101–103, 101f, 343, 344f
management consultancy firms
Managed Professional Businesses (MPB), 67–69
new developments, 69–72
organization/economics of professional partnership. See
professional partnership
recruitment as critical function in, 81
management consultancy industry
challenges, 39
Fourth Industrial Revolution, 32–38
growth, 46–48, 46f
measuring the size of, 39
Second Industrial Revolution, 28–30
Third Industrial Revolution, 30–32
three critical dimensions of, 39–43, 40f
management consultants
career development system, 90–95
desired qualities of, 79, 79f
hiring reasons, 8–13, 9f, 79–81
independence, 3
learning and development, 86–87
as problem-solvers, 9
providing recommendations, 2
reasons for applying for position, 77–79
recruitment process, 81–85
roles of, 13–16, 14f
voluntary departures, 95
work of consultant, 88–89
management engineering firms, 29–30
managers, 2, 53–54
business, 28
and consultants, 57, 60, 62, 66
development programs for, 88
helping, 5
interviews by, 85
productivity of, 66
project, 205–206
responsibilities, 53, 90f
supervision of, 88
client, 5–6, 8, 13, 20
margin, profit, 65, 67
market opportunity, 184
marketing of the firm, 101–105
marketplaces, for management talents, 37
MBB, 37
McKinsey & Company, 29, 30, 37f, 44, 164, 168
McKinsey Solutions, 36
MECE (mutual exclusiveness and collective exhaustiveness of
elements), 159–160, 161, 244, 248, 276, 301
mediators, 142
mentors, 87
messages and chart types, 289–292, 290f, 291f
micro-foundations approach, 157–159
Minto, Barbara, 159
Minto Pyramid Principle, 159–161, 160f, 270, 276
missing data
creating, 214, 229
estimating, 216
‘Monte Carlo’ simulations, 215–216
morphological analysis, for creative problem-solving, 254–255
Motista, 36, 38
multi-divisional firm, 68
multi-level problem-solving
decomposition and composition, 157–158
hypothesis development and testing, 158–159
micro-foundations approach, 157–159
problem decomposition, 157–158
sequencing, 158
solution composition, 159
mutual exclusiveness, 160–161
negative events/developments, 134
neo-liberalism, 47, 49
non-executive directors, 68
non-key value products, 233
non-managerial tasks, 7
normal annual production, 64
not-measurable results, 21
observation, of people’s behaviour, 212–213
obsolete beliefs, 123
offering, of management consultants, 40–42
office(s), 58, 104
functions, 59–61
space, 134
See also implementation offices
official role, 15–16
offsite training, 86
on-demand economy, 33
on-the-job training, 60, 86–87, 99
onboarding program, 86
one-person consultancy firm, 55
operational effectiveness analysis, 205
operational implementation gaps, 308–309
operational problems, 134, 244–245
operational solutions
choosing frameworks, 304
creating consistent combinations of partial solutions, 253–
256, 254f
developing partial solutions, 249–253
example of, 253
framework for, 246–248, 246f
gaps between old and new values, 304f
identifying value gaps, 304–305
implementing, 303–305
indirect process for developing, 249–256, 250f
sub-components and choices, 247–248
systems approach, 246–247
operations consultancy, rise of, 28–29
opportunities
approaches to identifying causes of, 183
clients’ definitions of, 147
gaps, 146, 147f
market and business, 184
online education, 184–185
politics of, 148
presentations about, 285–286, 286f
problems versus, 133, 146–149, 147f
sequential analysis of, 182–186
size, 185–186
organization consultancy, rise of, 29
organizational capabilities, 321
organizational culture, 61
organizational structure and systems, 246
‘out-of-the-box’ thinking, 83
overhead value analysis, 205
parallel projects, 331
Pareto analysis. See 80/20 rule
partial solutions, developing, 244, 249–256
partners, 53
business, 131
of consultancy firm, 101
in creating awareness, 104, 105
development programs for, 88
earning permission, 107
junior and senior, 90
leverage of, 55, 56f, 66
managed professional businesses and, 102
number of, 66
promotion to, 72
relationship with client, 343
responsibility of, 343
role of, 343
See also professional partnership
people- and asset-based management consultancy, 36, 36f
performance appraisals, 91–95, 342
criteria, 92f
below expectations and poor performance, 95
grading categories, 92–95, 343
high performance, 94
meeting expectations, 94
outstanding performance, 93–94
up-or-out process, 93f
performance-based pay, 22, 62
performance gaps
development of, 134, 134f
rules for segmenting of, 176
rules for structuring, 170–171
rules for structuring possible explanations of, 181–182
performance indicators, 117–118
performance management, role in implementation process, 333,
334f
performance objectives, of clients, 132–133
permission, earning, 107
Perot, Ross, 31
personality, 80
physical consultancy product, 271
pitfalls, 129
in presentations, 272–273
planning
of analyses, in Structured Problem-Solving, 202, 202f
developing risk management, 302
project, 330–331
See also under implementation; work plan
policies, for client selection, 61
Porter, Michael, 249
Post-it notes, 285, 285f, 286
Power-Interest Grid, 138
PowerPoint slide presentation, 271
practice area networks, 87
prescriptive questions, 122–123, 125
presentations
agendas for, 294
argumentation structure, 281
delivering, 295
designing slides. See slide design
developing storyline for, 285
importance and role, in consultancy projects, 271–272
opportunity-driven structure for, 286, 286f
physical consultancy product, 271
pitfalls in, 272–273
in Post-it notes, 285f
practical advice for, 295, 295f
problem-driven structure, 281–286
project timeline with meetings, 272f
how questions, structures for, 277f, 278
solution-driven structure, 278–281, 279f
of solution, structuring, 276–278
starting positions and introductions, 275, 275f
tracers, 294
understanding the audience, 274–275
for various meetings, 272
at various project stages, 271
visual techniques to emphasizing structure, 293–294, 294f
why questions, structures for, 276, 277f
price
elasticity, 231
sensitivity, 208, 231
stock, 68
problem-driven presentation, structuring, 281–286
case study, 296–297, 297f
clients as presenters, 284
developing storyline, 285
example of, 282f
offering alternative solutions, 283
opportunity-driven structure, 286, 286f
politics, 284
recommendations, 283–284
sequential analysis, 283
problem-solving, 9, 83, 84, 127–128
Answer-First Problem-Solving model, 162f, 163–164, 163f,
196f, 239, 240f
consultants’ models for, 162–168, 162f
discussions, 335
examples of creative techniques, 252f
Sequential Analysis Problem-Solving model, 162f, 168,
168f, 196f, 239, 240f, 241f
Structured Problem-Solving model, 162f, 164–167, 164f,
196f, 239, 240f
problems
analysing context of, 128–131
balanced approach, to diagnosis, 127–128, 127f
causers, 136
clients’, 105
complex, 142
cutting corners, 127
data collection/mining and, 128
definition, 132, 143
developing hypotheses about client’s, 195–199
disciplined approach, 127
gap between realized performance and objective, 134f
identify real, 132–135
multiple, 135
objectives defining, 132
operational, 134, 135f
and opportunities, 133, 146–149, 147f
political, 142
prospects without, 146
questions, 122–126
reasons for clients can be wrong about, 123–124
simple typology of, 141, 141f
solving, 133, 136
and stakeholders, 135–141, 136f
statement, 143–145, 145f
strategic, 134–135, 135f
suitability of prospect’s, 125–126, 126f
tame, 142
testing hypotheses, 199–201
types of, 141–143
unbalanced versus balanced approach, 127f
uncritically adopting prospects’ definitions of, 127–128
victims of, 135–136
wicked, 143
work plan for testing hypotheses, 205–206, 207f
See also decomposition; multi-level problem-solving;
Sequential Analysis Problem-Solving model
procedural consultancy, 17–18, 17f, 18–19, 35, 52
process consultation, 15–16
product design, 245
productivity, 66
productization, 18–19, 35–36, 42, 70–71
productized consultancy, 32–38, 36, 71
professional partnership, 52
annual profit, of firm, 64–65, 65f
billing multiple, 64
client industry practices, 56–57
compensation costs, 63, 64f
consultancy activities organization, 56
drivers of profit, 65–66, 66f
economics of, 62–67
functional practices, 57
increasing profit per partner, 66–67
normal annual production, 64
office functions, 59–61
offices, 58
organization of, 52–61
partner leverage, 55, 56f, 66
profit of consultancy project, 65
project team structure, 55, 62
pyramid, 53–54, 53f
role/revenue of projects, 54, 54f, 62, 63f
support activities, categories of, 58–61
profit
annual, 64–65, 65f
drivers, 65–66, 66f
formula of, 159
gaps, 135, 168
impact of revenue gap and cost gap, 219–220
margin, 65, 67
per partner, 66–67
pool analysis, 205
primacy of, 132–133
problems and opportunities for, 133
of project, 65
project objective statement (POS), 303
projects
central role of, 54, 54f
closure of, 341–344
competition, 112
consultancy’s cost/expenses, 113–114
as consultancy’s main vehicle, 62
for consultants, 4
consultative approach to selling, 106–109, 106f
contingency fees, 113
description, 109–111
evaluation of, 340–341
flat and variable fees, 114
forms of planning, 330–331
importance of presentations in, 271–272
kick-off, 331–332
leaders. See managers
milestones, 330
new, 342
parallel, 329
phases, 101
pre-mortem analysis of, 140
profit of, 65
proposals for, 109–112, 109f
providing profile of consultants, 111
revenue of, 62
setting the fee, 112–114
setting up implementation, 301–303
budgeting, 302
creating project charter, 303
developing risk management plan, 302
organizing, 302
purpose, 301
structuring/scheduling the work, 301–302
success measures, 301
stakeholders’ power over, 138
team structure, 55, 62
as teamwork, 206
terms and conditions, 111–112
tracking the implementation, 333
work, 88
proposal, for projects, 109–114
See also projects
Ps (three), 132–133, 133f
‘purchase of expertise’, 14
PwC, 37f
The Pyramid Principle: Logic in Writing and Thinking (1985),
159
qualitative data, visual structures of, 293, 293f
questions
counter-, 125f
descriptive, 122
explanatory, 122
how, 277f, 278
importance of, 278–279
key, 143
prescriptive, 122–123, 125
prospect’s, 124, 125f
types of, 122–123, 122f
why, 276, 277f, 280
Rackham, Neil, 106
recommendations, for business decisions, 2–3, 283–284
recruitment process, 60, 81–85
application assessment, 81–82
application preparation, 85
assessment centres, 85
case interviews, 82, 85
fit interview, 83–84
forms of cases, 83
interviewers look for, during case interview, 84–85
problem-solving, 83
structured thinking, 83
three rounds of interviews, 85
Reichheld, Frederick, 118
reinforcement, positive/negative, 114–118
repeat purchases, 103
report writing, 59
reputation, 115
request for a proposal (RFP), 112
research and knowledge management (R&D), 58
resistance, 338
resources
and capabilities, 247
provision of, 328
result obligations, 327
risk, 42, 42f, 107
risk management plan, developing, 302
sales force effectiveness analysis, 205
sales funnel, 102, 102f
sales pipeline, 117, 118f
Salesforce.com, 36, 38
satisfaction, clients’, 103, 115
scalability of consultancy, 71
scapegoat, 11
Schein, Edgar, 13
Schwab, Klaus, 32
scientific hypotheses, 258
scientific management, 29
scope creep, 206, 336
Second Industrial Revolution
and birth of management consultancy, 28–30
management engineering, 29–30
operations consultancy, 28–29
organization consultancy, 29
strategy consultancy, 30
Securities and Exchange Commission (SEC), US, 31
selling projects, 106–109
senior partner, 90, 90f
sequencing technique, 158
Sequential Analysis Problem-Solving model, 162f, 168, 168f
case study, 230
with decomposition of problem explanation process, 196f
first question: is there a problem?
decomposing gaps into sub-gaps, 169–170, 170f
gap between objective and realized performance, 168,
169f
measuring sub-gaps’ contributions to gap, 172
prioritizing sub-gaps, 171–172
process steps for defining problems, 169, 169f
rules for structuring performance gaps, 170–171
segmenting gaps of multi-business corporations, 172
and opportunities, 182–186, 183f
example, 184, 184f
identifying possible causes, 183
market and business, 184
segmentation of online education, 185
size, 185–186, 186f
planning of analyses and work in, 202, 202f
presentation structure, 282
reasons, to solution development, 239, 240f, 241f
second question: where is the problem?
80/20 rule, 173
process steps for segmenting problems, 173–174,
173f, 175f
rules for segmenting of performance gaps, 176
segmentation of sales volume gap/cost gap, 174, 175f
uneven distribution, 173
third question: why does the problem exist?
efficiency, 176
engaging stakeholders in development of explanations,
181
possible explanations for sales volume gap/cost gap,
180, 180f, 181f
process steps for explaining problems, 176–178, 177f
rules for structuring possible explanations of
performance gaps, 181–182
three approaches generating possible explanations,
178–179, 179f
sequential synthesis process, 253
service, consultancy as, 5
ServiceNow, 38
shareholders, 68
sharing economy, 33
simulations, 215–216
skills, personal, 321
slide design
avoiding wordy slides, 288
as carrier of message, 286–287
creating fancy-looking charts, 289
disclaimer, on slide decks, 288
horizontal/vertical flows, 287f
keeping slides simple, 287–288
messages and chart types, 289–292, 290f, 291f, 292f
qualitative data, visual structures of, 293, 293f
rules for, 228, 229f
top-down approach, 287
visualizing presentation structure, 293–294, 294f
small-scale experiments, 332
SMART, 132, 143
social media, 33, 210
soft selling, 106
solutions
approaches for developing possible, 241–243
assessing assumptions, 261
consistency of, 238, 238f
creating data, 260–261
decision to accepting/rejecting, 261
direct process for developing possible, 241–242
frameworks for, 244–249
generic, 245, 267
good, 238–239
hypotheses, developing and testing, 257–260
indirect processes for developing, 241, 243, 249–256, 250f
models for developing, 239–243, 240f
multi-level development, 237
offering alternative, 283
partial, 244–245, 249–256
requiring composition, 237
selecting the best, 262–264
structuring the presentation of, 276–278
testing in practice, 262
See also implementation; operational solutions; strategic
solutions
specialization, 91
staffing, 37, 60
stakeholders, 14, 39, 54, 107
actions for creating awareness, alignment, and ability of,
319–321
alignment with the client, 138–141, 316
conflicting interests, 316
decomposing with help of internal, 310
developing possible explanation with insights from, 178–
179
engaging, 251–252
in development of possible explanations, 181
identifying, 137–138
internal/external, 137, 138, 210, 313–317
key, 136f, 145
mapping, 138–141, 139f
in implementation, 312–313, 312f
need for, 312–313
poor communication with, 338
power over consultancy projects, 138
problem causers, 136
in problem-solving process, 274
problems, 337–338
projects as more than intellectual puzzles, 137
readiness assessments, for implementation, 314–317, 315f
resisting, 338
support of, 136–137
understanding, 135–141
victims of problems, 135–136
Standard Oil (Exxon), 29
status, gaining, 78
steering committee
implementation office, 328
meetings, presentations for, 271–272
organizing the project, 302
stock price, 68
storylines, developing, 285
strategic groups
advise & activate, 37f, 38, 70
agency, 37f, 38, 70
aggregate, 37f, 38, 70
assemble, 37f, 38, 70
of management consultancies, 37–38, 37f, 70
strategic implementation gaps, 310
strategic problems, 134–135, 245, 267f
strategic solutions
abstract strategy parts, 306
combining partial solutions into consistent, 255–256, 256f
example of, 255, 305
framework for, 248–249, 248f
gaps between old and new values, 306f
implementing, 305–306
indirect process for developing, 255f
integral changes, 305
relationship between strategy and business functions, 306,
307f
strategy consultancy, rise of, 30
structural compensation, 63
Structured Problem-Solving model, 162f, 164–167, 164f, 196f,
239, 240f
See also implementation
structured thinking, 83
structuring (decomposition), principles of
Minto Pyramid Principle, 159–161, 160f
rules for, 161–162
suitability of prospect’s problem, 125–126, 126f
superior earnings, 77–78
support
centres, 58–59
services, 42, 42f
specialists, 58
surveys, 212
Tableau, 228
tacit/implicit knowledge, 18, 35, 58
talent, 116
Tata Consultancy, 32
Taylor, Frederick, 29
teams, 56, 88
teamwork, 206
technological and institutional changes, on management
consultancy development, 30–32
temporary positions, 91
Third Industrial Revolution
‘Big Eight’ accountancies, 31
European and Indian IT consultancies, 32
and IT management consultancy, 30–32
new entrants of IT consultancy, 30–31
technology and business process outsourcing, 32
thought leadership, 57
3-C model, 203
three Ps, 132–133, 133f
time series, charts for, 292
top-down slide design, 228, 287
tracer technique, for presentations, 294
transformation market, 41
trust, developing, 106–107
Uber, 33
unethical business practices, 12
unofficial roles, of consultancy, 16
unreliable data, 209
up-or-out policy, 91
Upwork, 33
US Securities and Exchange Commission (SEC), 31
value-adding activities, 246
value capture model, 249
value chain, of management consultancy firm, 60, 60f
value creation model, 249
value proposition, 249
value transformation, 41, 42f, 59
variable fee, 114
visual techniques, to emphasizing presentation structure, 293–
294, 294f
voluntary departures, 95
‘W-model’ of repeated decomposition and composition, 306–307
WhatsApp, 33
work
breakdown structure, 301, 308
of consultant, 88–89
experience, 80–81
work hard–play hard, culture of, 77
work plan
for cost analyses, 224, 225f
developing, 205–206, 207f
managing the workload, 206
prioritizing dependent activities, 206
teamwork, 206
for testing problem hypotheses, 205–206, 207f
for testing sub-assumptions of solution hypothesis, 259,
260f
workshops and focus groups, 211
workstream leaders, 334–336
workstreams, 322, 328