Management Consulting News

The speed with which my "hairstylist" can cut what little hair I have left always astounds me. As she clipped away the other day, my eyes were drawn to the official-looking certificate, complete with raised lettering and several signatures, stuck to the lower left corner of her mirror.

As I peered closer, I was comforted to learn that my hairstylist had passed a series of tests and was certified by the State of California to ply her craft.

It occurred to me that she had passed a more rigorous screening before becoming a hairstylist than consultants have to pass before hanging out a shingle.

Jack Chapin, a consultant and former National Chairman of The Institute of Management Consultants USA, wrote a provocative article on the question of standards for consultants. Chapin's view is that even though existing associations have a code of ethics, they do "nothing to protect the consultant or the client."

He goes on to predict, "Ours will be a regulated profession." He suggests strongly that now is the time for the profession to act on standards. "Now before our lawmakers call for new legislation. Now before we have a Sarbanes-Oxley kind of bill regulating consultants' activities."

Should the status quo remain? Or, is the time for standards upon us? If so, should the profession be self-regulated or government-regulated? Send me an email with your take on this subject.

"The only nice thing about being imperfect is the joy it brings to others." - Doug Larson

Michael Treacy, former professor at MIT's Sloan School of Management and co-author of the bestseller, The Discipline of Market Leaders, has been helping companies achieve market success for more than twenty-five years.

He is the co-founder and chief strategist of GEN3 Partners, a consulting firm that works with clients on product innovations. Prior to Gen3 Partners, Treacy led a strategy consulting firm.

Treacy's new book, Double Digit Growth, presents a common sense way for companies to achieve and sustain profitable growth. MCNews talked to Treacy about business growth and about his views on the consulting industry.

MCNews: Does it seem to you that today's businesses place less emphasis on managing growth than on managing costs?

I can challenge almost any management team in any company to cut costs 10% in a year, and they would know exactly how to do that--what data to go grab, how to analyze it and how to set stretch objectives. They'd distribute responsibility for those goals and initiate projects and programs. And--boom, they'd find a way to meet that challenge.

But if you ask management teams to grow a business 10% a year, they don't have a clue. They'd say well, it would take some luck and we'd have to do some trial and error. But if the market isn't growing, there's just no way we could do it.

MCNews: Is the discipline required to achieve growth that different from what's required to execute large-scale cost reduction?

Treacy: It should be the same, right? You gather data, analyze it, set objectives, initiate projects and then have a follow-up process.

Treacy: Most companies have no diagnostic information on growth, and managers don't spend a lot of time thinking about that aspect of their business. What does the typical budget in a company look like? It has maybe fifteen or twenty lines on cost and one or two lines on revenue.

Companies have invested billions in accounting systems that spit out a load of data on costs but almost nothing on revenue. The details about sources of revenue are not that difficult to figure out, but most companies don't have that basic information with which to run their businesses.

For years, many successful companies have grown profits on flat revenue. How? They became masters at cutting costs. But, we are reaching the outer limits on trimming costs and managers have wrung it out for about as much as they can.

There are also very few opportunities for price increases in most markets these days. If anything, people are worried about deflation. So if you've tapped out cost cutting and you've got no room to maneuver on price, how do you grow profits now? You've got to grow volume. And most managers don't know how to do that.

MCNews: Have consultants contributed to this focus on corporate cost reduction?

Treacy: The consulting profession has gotten world class at helping organizations cut costs. Look at strategic procurement, for example. It's just another version of cost cutting. Or look at process reengineering. Say what you will, 85% of it ended up being focused on cutting costs.

Consultants have developed a powerful capacity for helping their clients cut costs. In fact, if there is one area in which consultants should be able to guarantee results, it is cost cutting.

Treacy: I think a long-term shift is going to happen. We're going to see growth be the agenda for companies for many years to come. And I don't think consulting firms are tooled up to help their clients--or themselves--with that.

Treacy: They need to recognize that if you want to grow a business, it takes a lot more than a sales force. If you're not thinking about value propositions and about how to use acquisitions and other approaches to help drive growth, then you're missing critical pieces of the puzzle.

The truth is you don't need to be very strategic or even very smart to get behind an aggressive sales force and grow a business to a certain level. You'll reach limits, but for a while you can grow like crazy that way. And that's exactly what consulting firms have done.

It's ironic that while professional services are essentially revenue driven, consultants don't know a lot about how to grow revenue.

MCNews: Do consultants need to change how they sell their services?

Treacy: For complex sales, a shift is already taking place in many industries. The old approach was to put super smart salespeople out there and give them some marketing and sales support. They lived on their wits and their incentive programs, and they made it happen.

But that's an expensive and risky way to sell because you end up paying those smart salespeople a ton of money. So some companies have flipped that around and have started to de-skill their sales forces.

All sorts of industrial product companies are headed in that direction. But I don't see consulting firms moving that way at all. Instead, consulting firms still rely on the million-dollar-a-year partner to do the selling.

In consulting firms, the bias in the partner process is toward revenue generators. Too often, the best consultants don't have the "numbers" to make it to partner. If you could find a different model for how to sell consulting services, you could broaden the criteria for selecting partners and end up with better partners running the firms.

Treacy: There are a lot of other complexities, but half of success really is about providing value to clients. And, I have to tell you, the value propositions most consultants put forward these days aren't worth much.

There's a cancer that is eating away at the stability of this industry, and that is the cost structure. The costs drive outrageous rates that, in turn, demand either superhuman levels of value or a real compression in the client-consultant relationship. Clients have to use consultants in just so precise a way that they can get enough value in a short period of time.

What's almost as bad is consultants' lack of perspective on the value of what they do. It brings to mind the old Saul Steinberg poster of a New Yorker's view of America. Somebody needs to produce a consultant's view of impact. I've talked to many consultants who actually believe that the delivery of a strategy is more than 50% of what it takes to drive results for clients. And I look at them like they're insane.

I have never seen strategy be more than 5-10% of what it takes to achieve results. What drives results is a very complicated, multidimensional beast. There are risks in many areas, most of which have to do with the management of people--not strategy and not systems.

Consultants want to get paid a premium as if they are at risk for results but they are, quite truthfully, utterly unwilling to take those risks.

MCNews: In the product world you do get a guarantee that this, whatever--hair tonic--will make you grow more hair. If consultants say here's the result we'll deliver, why can't they guarantee those results?

Treacy: Because deep down they understand that they control only 10% of the variables. In their heart of hearts they know that their proposition is a lie. That's one reason I think the consulting industry is morally bankrupt.

And, by the way, all these comments about consulting? Just change the word to professional services. Advertising as an industry is just as morally bankrupt. And look at the troubles investment managers have gotten into on ethical issues. These people are not at risk for results. And they have an outlandish opinion of their self-worth that drives cost structures and premium pricing that, in the end, isn't justifiable.

Treacy: I started a consultancy in 1995 with the avowed purpose of showing the big firms how consulting should be done. I was going to do the true and honest consulting that young, small firms try to do.

We weren't going to have a pyramid structure. It was going to be more like a cylinder--one partner, one principal and one associate. We were going to do short-term assignments and get out of the client so we weren't sitting there always looking for the next job.

We did tremendous work but couldn't make enough money. Without the pyramid structure, you can't pay partners what they think they're worth. And if you don't spend your time groveling for the next assignment, business development eats you alive.

So the first lesson I learned was about the difficult economics of the consulting industry, especially the cost of business development and the cost of personnel.

Over time, my firm grew to be very successful. But I'd given up on every principle I had. We had a pyramid structure. We were doing long assignments. And in month one, I was trying to get the next assignment from that client.

In 1999, I left to start a new business with Jim Sims. We bought a tiny company made up of Russian scientists with an amazing methodology for science-based product innovation. It's the first time in my life in professional services that I'm not embarrassed to discuss fees.

Not all consultants have to do what we're doing, but the whole industry has to address this cost cancer, especially the big firms.

MCNews: Are there other reasons that you're not enthusiastic about big consulting firms?

Treacy: These firms gravitate to companies that are under-led and under-managed. You don't see consulting firms billing $10 million a year to General Electric or Wal-Mart or any of the other highly successful companies out there.

The big consulting firms often put desperate companies on a form of life support. Maybe it's just a sad reality that there will always be laggards in the market who look to third party experts as their salvation.

MCNews: And they buy a lot of work. The question consultants have to ask themselves is whether or not what they are doing is actually helping.

Treacy: Yeah--do I want to be a party to this? It's like plastic surgeons that have patients who come back again and again. There's a point at which you have to ask is this ethical?

MCNews: If you look at the past history of the consulting industry, it looks cyclical. Do you think there really are cycles for consulting?

Treacy: I think three cycles are piled on top of each other. There's no doubt there's an economic cycle, right? When clients tighten their budgets, the first thing they cut is discretionary spending, and surely most consulting is discretionary. So that is for real.

The second cycle that has a significant impact on the consulting industry is what I will simply call the euphoria cycle--and it doesn't necessarily correlate to the economic cycle. There are eras when companies are highly optimistic, concept-oriented and futuristic in their thinking. Then there are times when companies get very realistic, tactical and show-me-the-money oriented.

The 1990's were a period of euphoria for businesses. Witnessing the shift to the current period of cynicism has been like watching a bi-polar personality. The higher we went in the 1990's, the only certainty was the lower we'd go when it went the other way.

I don't see us climbing out of this cynicism cycle for three to five years, even if the economy continues to improve. I think the degree of cynicism clients have about the new, the possible and the conceptual will remain with them for a long time.

Treacy: The third cycle is related to the euphoria cycle. We have to recognize that business innovation is the little engine that has driven the whole consulting industry.

Twenty-five years ago when companies thought about innovation, they thought mostly about product innovation. Then along came some companies--Wal-Mart, Southwest and FedEx, for example--that proved with powerful business models that you can have as much impact in a market by innovating how you do business as you can by innovating what you sell.

The business innovation cycle peaked at the top of the Internet boom when people thought that the reinvention of business models could somehow overrun wealthy, well-established companies. Since then, I think the business innovation cycle has run dry.

You tell me--what's the big, bold, new idea in business today? I can't find it. We had reengineering in 1990, followed by new economy, web-based company models around 1998. Those were the last two.

So here's where we are in consulting. We're in a modest up-tick in the economic cycle. We might have hit bottom in the euphoria/cynicism cycle. And in the business concept cycle there is no big concept in sight that has broad appeal.

We're in a slightly strengthening economy, with deeply cynical clients and no big new idea. So is this market going to get better? Don't bet on bonuses this year either folks. You haven't gotten a bonus in three years? Well, this is year number four coming up.

Treacy: I have told audiences far and wide that business process outsourcing is a huge, twenty-year opportunity. That assumes, of course, that you can take over a process and commit to results--not just effort, but real results.

Opportunities have to be chosen carefully because outsourcing will be incredibly remunerative for some business processes, but for others, profitability will be elusive.

But business process outsourcing might be the next big idea. In fact, it could be the salvation of professional services if the industry got behind it and said let's build the capabilities we're missing to be able to commit to results.

Treacy: I'm rereading Darwin's The Origin of Species, and for a very specific reason. The idea is that products and technologies follow evolutionary lifecycles that are similar to natural selection among biological entities.

I'm trying to understand, not just Darwin's basic idea, but evolutionary systems and what's new and different about that science. I'm going look at how evolution applies to technology and try to more deeply understand what our Russian scientists have on that front.

How to Satisfy Clients: An Interview with Steven Banis and Mac McManus

At the end of 2003, the business analysis firm, Ross McManus, published the results of its survey on the impact of events in recent years on consultants and other professional service providers. The report, titled Selling and Satisfying the Fortune 1000 in a Post-Enron World, is based on over 500 hours of open-ended interviews with executives at Fortune 1000 companies.

MCNews talked to the authors of the study, Steven Banis and Mac McManus, about the survey and its implications for consultants.

MCNews: Your study indicates that corporate executives are "deeply dissatisfied" with consultants and other service providers. What's the root of their dissatisfaction?

Banis: When it comes to satisfaction, the number one factor for 96% of the executives in our study was whether or not their consultants truly understood the client's business. Yet only 72% of those executives were, in fact, satisfied by the depth of that understanding. That's a significant gap between expectations and reality.

And understanding the client's business is more than just knowing an industry from work with other clients. It's about the unwritten, cultural decision-making processes that are unique to each company.

If the client invites you to comment or add your expert opinion, especially about changing how things are done, you'd better make sure you know how consensus is reached in that organization. How are decisions made? What are the barriers? What is the value system of the company?

If you are not able to build consensus and lead effectively inside the client's organization, the executive who hired you will have a serious handicap in maintaining the relationship long term.

MCNews: Clients are not always open to letting consultants know how the power structure works or even who the decision makers are in a company. What should they do?

McManus: Executives told us that they get a lot of questions from consultants during the request for proposal (RFP) process about how the company works. But once consultants win the engagement, they are not asking those questions. So consultants may complain that clients won't tell them how things work, but that may be because they are asking at the wrong time.

Banis: Senior executives are disappointed that many service providers don't come and have informal sit-downs with them and say, thanks for awarding us the business. Now, how can we make your life easier? What goes on inside the company that we need to be aware of to insure that this project succeeds?

Consultants should express genuine concern, not just for achieving the results they were hired for, but also for the experience they create while they are there. How you ask for information is important. Your posture and tone signal to the client whether or not you are open to coaching about the company's internal workings.

McManus: Another aspect to understanding the client's business is reflected in the preparedness of the consulting team. Consultants need to realize that the client's organization is not a training ground for the consultant's people. If you bring in five consultants to work on a project, they all must have an understanding of the client's business.

MCNews: Is there some tolerance for inexperienced people on the team if they are surrounded by more experienced people?

Banis: Of course, clients allow leeway for bringing somebody new up to speed on a project. But we find that consultants do almost no briefing for team members coming onboard a project. At least that's the perception of clients.

We are finding that clients generally feel that the senior-level people, for example the partner in charge or the senior manager on a project, are competent on these issues. But the rest of the team is left so much in the dark about the cultural aspects of the client's business that it hurts the team dramatically. You don't want clients to say, "That consultant knows her stuff, but she doesn't understand what we are trying to accomplish here."

MCNews: So you see a flaw in the on-boarding process for project teams?

McManus: Yes. And it's the little things that get forgotten that cause the biggest problems. If a firm just did some role playing before going in to sell to a client, that would help. Educate your team before you go into a client's organization.

MCNews: What other factors are important to clients' satisfaction with consultants?

Banis: Another area that is critical to satisfaction is communication. More specifically, clients say that consultants don't listen.

Many consultants have their signature approach or pet methodology and they have a tendency to provide a one-fits-all solution for clients. Instead, you need to actively listen to the specifics of each client's needs and custom tailor your expertise to those needs. For example if you are asked to submit a proposal that's no more than thirty pages, don't show up with fifty pages of boilerplate.

MCNews: What's been the impact of events of the past few years--the recession, terrorism and Enron--on consulting?

Banis: Enron caused trust erosion and panic and the recession has driven profits lower. Terrorism and the war on terrorism have generated doubts because no one knows how far it will escalate or when it will end. The upshot of all these events is that consultants should expect clients to be uncertain about the future.

The Enron/Arthur Andersen mess led to the Sarbanes-Oxley law, which is having the biggest impact on corporate behavior since the Securities Act of 1934. Some people mistakenly think that Sarbanes-Oxley is purely an accounting or financial issue, and that couldn't be further from the truth.

McManus: Because the new law requires companies to have internal controls in place, executives are under intense scrutiny about how and to whom professional service contracts are awarded. Suddenly, a CIO or CFO who had signing authority for any kind of engagement can't do it anymore because of new internal controls.

Contracts over certain amounts have to be reviewed by the chain of command. I've seen the amount be as low as $5,000. So whole review processes have been put in place. And one result has been for companies to say we need more competitors at the table when we consider an RFP.

Banis: Sarbanes-Oxley has also given executives license to act on their dissatisfaction and sever consulting relationships that have grown stale or unproductive. Long-term relationships with service providers are now up for review.

It doesn't matter what function--information technology, human resources, legal, accounting or consulting--across the board, relationships are being reexamined. In areas where there is frustration, providers are being booted out at an incredible pace.

McManus: But there is a positive outcome for consultants. With clients bringing in more competitors to propose on projects, it gives consultants the opportunity to get in there and take business away from incumbents.

Banis: That doesn't mean more big firms competing. Small and mid-sized firms are going to have their day in the sun now. We think this will bring an unexpected boon for the economy because these new competitors will bring new ideas and new approaches that will shake up the entire consulting industry.

And you know what? Competitors are going to come from places you had not thought of before. You may be working on business development, for instance, and competition might come from someone who is not even in your category.

MCNews: How should consultants expect clients to behave as a result of these changes?

Banis: Clients are going to expect consultants to listen better and develop a deeper understanding of the client's business. They are also going to expect new ideas. Clients are saying don't come at us with the same approach anymore.

And there is going to be a major backlash against technology being the answer to everything. Dissatisfaction is already evident about big technology projects not living up to their billing.

Consultants should also expect a zero-tolerance environment for bad behavior or even the perception of it. Good manners and ethical behavior really matter now for maintaining and winning business. That standard may not be sustainable, but it is important for the short term.

So make sure you communicate well, bend over backwards to provide clients with more value than they think they contracted for and, by the way, watch your language.

MCNews: Where you surprised by the survey results?

McManus: I wasn't that wowed by what was said. I was surprised, though, by the intensity of the responses. Executives were literally hollering. I just could not believe the volume as they vented their frustrations. We hit a nerve.

Banis: Mac's right about that. Let me tell you about two other surprise findings.

Whether you're an IT or strategy consultant, an accountant or an executive recruiter, to a great degree you are all homogeneous in the client's mind. Of course, clients understand that each has a functional specialty, but the way they view you emotionally, how you win business and the way you keep relationships with clients is the same.

Another finding is that clients almost dismiss high-quality work as expected--the price of entry into the game. You are not going to get extra credit for doing what you were hired to do. But if you fall short of excellence, you're going to get hammered.

Consulting is a relationship-based endeavor, with some consultant-client relationships lasting for years. Clients expect a lot more from those relationships than fly-by hired help; they expect consultants to be outstanding thinkers with insights and expertise that go beyond what clients have in their own organizations.

MCNews: Thanks to both of you for all your time today.

Find out more at www.ross-mcmanus.com.

The full report can be purchased at the web site.

Note: MCNews receives no commission or consideration for purchases made by MCNews subscribers.

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Peter Drucker has been hailed both in the US and abroad as the seminal thinker, writer, and lecturer on the contemporary organization. In 1997, he was featured on the cover of Forbes magazine under the headline, "Still the Youngest Mind," and Business Week has called him "the most enduring management thinker of our time."

MCNews readers may be interested in the Drucker Archives, which contain the life works of this extraordinary thinker. This impressive collection will serve students, managers, scholars, and researchers for generations to come. You may want to bookmark it at http://drucker.cgu.edu/DruckerArchives/data/index.htm.

There's been so much ink devoted to RFID, or Radio Frequency Identification, that it makes sense to take a quick look at this tool, what it does and how it might benefit clients.

RFID is a generic term for technologies that store a serial number, and other information, on a microchip that is attached to a tiny antenna. The chip with its antenna is usually affixed to a product, an asset or even clothing.

The antenna allows the chip to transmit product information to a reader, which, in turn, transmits information to other devices, like a company's inventory control system or even a cash register. It's not impossible to envision a day when an entire shopping cart of groceries could be scanned and priced without being removed from the cart.

RFID technologies got a shot in the arm when retailing giant Wal-Mart mandated that its top 100 suppliers deliver RFID-tagged pallets to three of its warehouses by January 2005.

Forrester Research: http://www.forrester.com/ER/Research/Brief/Excerpt/0,1317,33298,FF.html. You will have to register with Forrester to read the article.

Accenture: http://www.accenture.com/xd/xd.asp?it=enweb&xd=services%5Ctechnology%5Cvision%5Csil_rfid_tags.xml.

When Tom Peters, best-selling author and self-proclaimed revolutionary, reached the age of sixty, he took the time to jot down sixty thoughts, one for each year of his life. He hoped these thoughts would capture his professional and, to some extent, his personal journey.

Peters published this article on his web site for anyone interested in his perspectives. You can download it at no cost, but you do have to register at his site. For a look, click here: http://www.tompeters.com. You'll find the link on his home page.

Every consulting firm has been affected to some degree by the offshoring phenomenon--the outsourcing of services to low-cost economies. But is it a bubble or a breaking wave? Onshore consulting firms are investing heavily to build their offshore capabilities and offshore firms are building their US and European presences through acquisition. Finding the optimum balance of onshore/offshore resources has become a top priority for firms and their clients.

Fiona Czerniawska, founder and managing director of Arkimeda, is one of the world's leading authorities on the consulting industry. She teamed with Tom Rodenhauser, founder and President of Consulting Information Services LLC, to produce a new report titled, Offshore Consulting: Benchmarking Future Strategies. The report takes an objective look at the competitive scenarios of offshore consulting and the implications of this trend.

You can download an executive summary of the report by clicking here http://www.arkimeda.com/reports/pdf/OffshoreConsultingSummary.pdf.

Note: MCNews receives no commission or consideration for purchases made by MCNews subscribers.

On January 1, 1999, the Euro was adopted as the currency for eleven nations--Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Greece joined the party two years later.

On January 5, 1914, Henry Ford announced that all "worthy" employees of the Ford Motor Company would receive a minimum wage of $5 per hour. The company's new Sociological Department was supposed to determine worthiness based on "good personal habits." Wonder what the people in that department got paid.

On January 10, 1863, London's Metropolitan, the world's first underground passenger railway, opened to the public. On opening day, 38,000 passengers rode the four-mile route, which had seven stations between Farringdon Street and Paddington. Charles Pearson conceived the idea for the underground to relieve congestion in the city.
http://www.loyno.edu/~history/journal/1989-0/ladart.htm

In February, MCNews welcomes back Fiona Czerniawska, author and expert on the consulting industry. We get her assessment on the past year in consulting, talk about the evolution of the client-consultant relationship and find out what she thinks are the most promising trends for the future of consulting.

Also joining us next month is Deborrah Himsel, author of the just released book, Leadership Sopranos Style. Himsel explains why Tony Soprano is a "remarkably effective boss who can teach MBAs a thing or two about leadership." Now there's a guy who understands the value of connections.

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." - Winston Churchill

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