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The Dark Side Of Firm Management: Ten Deadly Management (Mal)Practices That Often Bring Consulting Firms to Incalculable Suffering or Even Agonising Death

Practice Management Black Paper For Premium Consulting Firms

Dear Colleague,


Consulting is about dispensing customised intellectual capital, yet, many consulting firms operate as if they were industrial companies mass producing some kind of fiendish doohickeys, and mass marketing them to anyone and everyone in need of doohickeys.

And as a result of this misconception, many consulting firms' operation can be the best described as a one-time transaction basis between fungible vendors and apathetic, indifferent clients who treat these vendors at arm's length through bidding wars fiercely waged by price- and control-obsessed procurement agents.

But there is a drastic difference between industrial companies and consulting firms...

 
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While industrial companies are highly compartmentalised, that is, sales, marketing, manufacturing, HR, accounting, etc., consulting firms are non-compartmentalised. This is necessary for the kind of trust-based relationships consulting firms' work is based upon.

While industrial companies sell commodities to customers, that is, people who buy commodities at competitive prices, using dedicated, usually content-less, sales forces, in consulting firms, every single associate and partner is selling experiences to clients. Clients buy care, protection and guidance at premium fees.

Clients basically buy thin air, and out of that, through close collaboration clients and their consultants jointlky create new value for clients. That is, consulting firms don't have dedicated sales forces, and everyone has extensive content knowledge.

Being a former military, I compare an industrial business to an army and a consulting firm to a commando.

In an army you have heavy horses, submarines, light cavalry, fighter planes, archers and, guided missiles and other nipplepiercingly exciting units. You have clearly separated silos of narrow specialists who know everything and some more about one single thing.

It also means that silos don't communicate horizontally with each other. When a heavy horseman wants to communicate with a fighter pilot, he has to communicate his message up in the chain of command, and then someone high up will relay the message to the other silo.

In contrast, in a commando you have cross-trained generalists. Each member of a commando knows hand-to-hand combat, can shoot, can handle explosives, can throw a knife, administer first aid and CPR, operate the radio, scuba dive, skydive, sail a boat, etc. In case of death or injury, any member can instantly replace any other member, and the team, however somewhat weakened, is still fully functional.

Somewhat weakened due to the one lost person, and the varying competency levels of each person in each skill.

The other differentiation is that, due to the nature of their work, commandos are given significant latitude of operation. They can make important tactical decisions without seeking agreement from the high command.

And my personal belief is that consulting firms should operate like a small super-agile, hyper-flexible commandos not as large armies.

It's not a new recognition that most consulting firms don't have transformational relationships with their clients. It's merely a money and activity transaction...

"Give me the money and we'll perform some tasks for you."

With a little attention these transactions could be changed to long-term peer-level relationships based on mutual trust and respect. And this is what we'll discuss below, staring with...

A Conceptual Confusion Between Maximisation And Optimisation

When we maximise something, we focus on one criterion, in single indicator. Think of Frederick Taylor's Scientific Management. He was so obsessed with the time of performing tasks, that he subordinated human dignity and fulfilment of doing great work to ox-like labour...

"Now one of the very first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental make-up the ox than any other type."

Sadly, many consulting firms are still stuck at that point.

When we optimise something, we have to find the delicate balance between multiple criteria.

But by the way nature operates, there aren't many places for maximisation. Just think about building a car. You can maximise it for speed, but then you're forced to ignore comfort, fuel consumption, safety, luggage space and other criteria. And this maximisation vs. optimisation dilemma was confirmed to me through my years as an engineer, designing all sorts of electronic bits and bobs. There are always several criteria to optimise for, not merely one criterion to maximise.

And when you look at many consulting firms, they try to maximise their operation for one single criterion, which usually is gross revenue. But that's misleading. It's like trying to lose weight and measuring your total bodyweight. What counts is lean body weight and fat loss.

Consulting firms that try to maximise gross revenue are like dieting people who try to minimise bodyweight while blissfully ignoring body fat content. In fitness, what counts is body composition not bodyweight. Have you noticed how many fat women do hours on end of aerobics classes, but are still fat?

As one of my fitness mentors, Tom Venuto calls them, they are slim fat. They look slim on the surface, but their bodies are nothing but skin, bones and fat. They look slim because their brain dead diets has broken down and wasted their muscles, and still run on 30% plus body fat content.

They used to be heavy and fat. Now they are light and fat. Yet, they look slim. Well, looking slim and being lean are two different things. Similarly, in consulting firms, what counts is the firm's overall proverbial "body composition", like profit per person, not total bodyweight, like gross revenue.

Consulting firms can easily double their revenue. All they have to do is quadruple headcount with some cheap people people. If these people operate at 50% of their performance potential, the firm can double it's gross revenue. But now the cost of production eats up the margin, so the firm's back to square zero or even lower.

Over the last few years far too many industrial management practices have infiltrated consulting firms, and holding them back from achieving excellence and peak performance in their categories. One of the worst examples is time-based fees and timesheets to track number of hours worked. Many firm partners and managers still fail to realise that managing a consulting firm is drastically different from managing and industrial company.

However, the consulting firm is the only business model in which something intangible (brainpower or call it thin air) is exchanged for money. Therefore managing consulting firms differs from managing companies in every other industry in two major aspects:

1 There is nothing visible to sell. Not a sausage. Clients exchange money for thin air, out of which, through collaborative synergy, clients are responsible to draw value for their investments. Consultants can only render value, but it is clients' responsibility to interpret, internalise and integrate the newly rendered value and turn it into results.

2 Also, measuring consulting firms' performance is totally different from measuring industrial workers' performance. It seems, Taylor's Scientific Management wasn't so scientific at all. Traditional industrial performance measurements, like number of hours worked are meaningless and misleading. Unlike industrial companies' outputs, consulting projects can't be quantified like truckloads of toilet bowls or crates of pumpkins.

And this leads us to the...

Consulting Firms' Mantra

It can be briefly summarised as...

"How can we deliver more client value at higher fees, and doing all that using less of our time, money and effort, while enjoying the process and the people we work with?"

Since several workaholics have called me a con artist for this statement, let's clarify this perspective right now to avoid misunderstanding later.

This concept is specifically for Low-Volume High-Margin (LVHM) consulting firms.

These firms work with select clients based on their Perfect Client Profiles. That is, prospective clients must live up to the firm's requirements of Perfect Client in order to qualify to become clients. These firms are premium firms charging significantly higher fees than the also rans of the industry. They also understand how to sell and get paid for the value they deliver.

The value you provide to your clients in not the function of time you spend with them. Clients want their issues to be solved as quickly as humanly possible. So, just because you are good at your craft and work quickly, you deserve good compensation because you created new value for your clients. The quicker you do it, the better off you are.

You can't pay a pro Marathon runner 720 times more than a pro 100-meter sprinter just because the Marathon runner takes over 2 hours to cover his distance and the sprinter takes only 10 seconds. Running, just like consulting, is about dispensing talent (for the runner it's physical talent) and customised intellectual capital (for the runner it's how to run effectively).

And this discrepancy takes us to some managerial mistakes and the astronomical price consulting firms pay for these mistakes. Mistakes like...

1. Getting Bogged Down With Chasing Money...

...and ignoring the steps you have to take to build a legendary firm.

It is common knowledge that we can't make money by chasing it. Here is a rather odd example, but if you focus on the point I'm making not the method I use to make it, you'll be fine. From a former life I am butcher, and I still slaughter on a small scale at four local family farms where I'm a joint venture partner. Small scale because this is super-high grade deli meat, so we go for quality not quantity.

It's not too hard to imagine that where there is blood and raw meat, there are flies. Not the tiny flies, but the big horse flies and bluebottles. And here I don't mean Secret Agent Bluebottle, the Leader of the East Finchley Junior Secret Agents Club, amateur knee-clapper and the Mastermind behind the second East Finchley World Cup from the world-renowned Goon Show, but I mean the real big nasty big flies.

Of course, just like any good butcher, I want these flies out of the way, so they can't wreak havoc with the meat.

At this point we have two distinct options:

1. Chasing the flies with a rolled-up newspaper and flattening them one-by-one. It's doable but it takes too much time and energy, and the number of flies I can kill is very very limited.

2. Creating a "honey pot". This is a jar halfway filled with sugared water. We all know that every well-behaving fly has a sweet tooth. Then I spread honey on the inner side of the lid and screw it on the jar. Then I punch a small hole on the lid, which is big enough for the biggest flies to squeeze through and get to their oh-so-much-longed-for sugar, but small enough to keep the fully fed flies inside the jar. Then I put out the jar in the working area, and get on with my work.

The interesting thing is that all the flies disappear. They all go to the jar. They are not interested in the "competition" (blood, meat or even the people) any more. They are only interested my unique offer, the sugar-water in the jar. And of course after tasting my offer, they can't get away, and they all die in the jar.

What is the lesson here? We create the "honey pot" and the prospects (flies in this case) came to us without our chasing them. One more consideration: Don't kill your prospects. In contrast to the name of one of my favourite bands, Dead Can Dance, I can assure you Dead Can't Pay. And they don't give referral. And as a former gravedigger, embalmer and crematorium attendant, I can confirm this statement.

We can't work merely harder and longer to increase our revenues. We have to offer value first. And when there is value, the right people will come. The first thing you can do is to check your website.

Is it client-focused or self-focused? Most consulting sites are self-focused. You see pages like, "Who We Are", "What We Do", "Our Approach", "Our Awards" or "Our Solutions."

How about page titles like "About You", "Resources for You", "Your Predicaments", etc.

Why not invite people to assess what you have for them and let them decide.

Your website, and all other materialise have to powerfully communicate your unique value, instead of forcefully pontificate about awards, solutions, methods and approaches.

Just remember former British prime minister, Margaret Thatcher's words...

"Being powerful is like being a lady. If you have to tell people you are, then you aren't."

The other side of the same coin is to attract money by the people we become and by what you transform your firm into. As the owner of your firm, you shape its future. You must create the right energy and atmosphere in your firm. From the standpoint of physics, everything is energy at different levels.

And only when you take care of certain energy elements, like passion, enthusiasm, devotion to excellence, only then you can manifest the energy of money. Have you ever walked into an office and sensed that something was very wrong. It was in the energy. I believe there is a direct relationship between the firm's energy and bank account.

So What The Hell's Next?

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