Succeeding as a Management Consultant (Book Summary)

Succeeding as a Management Consultant: Learn the skills used by the leading management consulting firms, such as McKinsey, BCG, et al. by Kris Safarova

INTRODUCING THE ENGAGEMENT

• Divide the engagement into different work streams, for example: operational improvement, services, and the business case

ETHICS AS A COMPETITIVE ADVANTAGE

• Being ethical gives you a formidable competitive advantage to accelerate your career.
• Ethics usually applies to three types of actions.
  • Actions not covered by law
  • Actions for which the law is not enforced
  • Actions for which the law is clearly wrong.
• To lecture others is to assume your rate of development in testing and accepting ethical concepts is the norm.
• Do things ethically, provided it does not put you in a situation where you will cause harm to yourself or anyone else.
• If it makes you feel good, then it is probably not charitable work.
• Being ethical does not mean you are a pushover. People can be tough and demanding, and yet still be values driven in every possible way.
• When you are deciding whether you are ethical, or not, look no further than your friends and all those questionable things they do that you find acceptable.
• Ethics is required when the law is not written, not enforced, or wrong.

BUSINESS JUDGEMENT

• Judgement is the way one interprets information.
• Analysis will only get you so far; how you interpret the findings is judgement and having the confidence to put forward a controversial interpretation based on your judgement is equally important.
• The responsible person does what they are told, correctly. The accountable person thinks about why they are completing task x, determines if another task should be done to achieve the intended goal, and makes those changes.

PROLOGUE

• Executives hire consulting firms whose mere presence signals they are serious about change.

WEEK 0: WEEK BEFORE THE ENGAGEMENT

• Planning commences with the engagement team reviewing all relevant newspaper articles, research reports, equity research reports, annual reports, and regulatory filings about the client. They will also read competitor information and obtain advice from other consultants who have worked on similar engagements.
• As the team conducts its research, each member will write down any issues they think affect the client.
• The team then clusters the issues into common themes.
• Generally, there are rarely more than eight themes for any one client and any one problem to be solved.
• After they are comfortable with the themes, the team puts aside the themes and key issues for a moment. The group then takes the key question presented by the client and tests if this is indeed the key question they need to answer in the engagement.
• They ask themselves, “If we solved this question posed by the client, would the problems at the client be resolved?”
• As the team develops each layer of questions, they test each layer (e.g., layer 2, layer 3, layer 4) by asking themselves two further questions.
  • First, are these the complete list of questions in this layer that can impact the previous question?
  • Second, have the questions been sufficiently separated so that changing the variables that impact one question will have NO impact on another question
• For the branches of the decision tree with the most issues, the team can conceivably assume that this is a priority area for the client.
• Using these detailed decision trees and hypotheses, the engagement team can determine the likely answer to the questions before they arrive at the client site,
• The engagement is therefore the process of proving or disproving hypotheses
• The best business cases are well thought out so that the models are simple and intuitive. Poorly designed business cases have highly complex models that are large, unfocused, cumbersome to update, and difficult to use.

WEEK 1-DAY 1&2: FIRST WEEK AT THE CLIENT

• Consultants need to build credibility among the client’s employees as they are learning about the sector.
• Workshops must always be staged and managed events with defined outcomes. It is a consulting rule never to go into a situation where the client has not been carefully prepared, and the outcome cannot be managed.

WEEK 1-DAY 2: TOP-DOWN ANALYSES

• Having the right answer was not as important as having the answer the team needed at a specific point in time on the engagement.

• It is very difficult for the management team to dispute findings from the focus interviews, benchmarks, and financial ratio analyses. Resistance, though, could come later when they analyse the implications of their findings.
• Focus interviews are a safe way for the younger team members to learn about the client and industry.
• The average top-down financial analyses across all clients, in all sectors, and irrespective of the client size, can be done in between 24 and 72 hours.
• Like the focus interviews, the financial analyses are like a compass. They highlight anomalies, data spikes/dips, patterns, and trends that must be examined further. They set the direction for more work.
• The aim of the top-down analysis is to find areas where a problem could exist, determine the likely benefit of fixing the problem, and a very rough validation with employees.
• No more than three types of analyses need to be done at this early stage.
  • Ratio analyses:
  • Cost structure:
  • DuPont/ROCE analyses:
• Case studies are rife with abuse. Any case study can be designed to show anything the consultant wants to show.
• It takes an experienced engagement team eight weeks, at a minimum, to understand just one narrow issue

WEEK 1-DAY 2: ENGAGEMENT CHARTER

• While everything else may change, the charter should never change unless the scope of the engagement officially changes. The charter should be only one page.

• The charter has five components:
  • OBJECTIVES The objectives are the reasons why the business case team exists in the engagement.
  • SCOPE
  • KEY ACTIVITIES: This section lists the main clusters of activities that are critical to reaching the objectives above.
  • DELIVERABLES: Consulting firms never present solutions/answers. They always present the implications of various options, and it is up to the board to decide the way forward
  • CRITICAL SUCCESS FACTORS: CSFs are the business case team’s requirements from the client and the broader team to ensure they can meet their expectations.

WEEK 1-DAY 2: WORK PLAN

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WEEK 1-DAY 3: THINKING ABOUT THE VALUE TREE

• At a company level, the fundamental drivers of economic value are the rate at which the company can grow its revenues and profits and its return on invested capital (ROIC) relative to cost of capital (WACC).
• Especially early on, be much more focused on the question you are trying to solve rather than the solution to that question.

WEEK 1-DAY 3: OPERATIONS STRATEGY & PRODUCTIVITY

• A more productive enterprise, versus its competitors, generates incrementally more value which can be reinvested in the business to keep growing.
• Success can only be measured relative to competitors
• Competitive advantage is how one will go about being productive. We know that productivity is total output value divided by total input costs. Competitive advantage is knowing whether the company will mostly differentiate itself on the numerator or denominator and how it will differentiate itself to be productive.
• You have to do both [create value and reduce costs] but truly excel at one.
• It is possible to raise productivity significantly by hurting the company.
• It is not enough to increase productivity in the short term, one has to do it by focusing on the competitive advantage that is appropriate to the company’s strategy and think how actions taken now will impact productivity in the long term.

WEEK 1-DAY 3: DEVELOPING THE VALUE TREE

• A central part of building business cases and economic models is the value tree.
• The economic model must be simple and specifically answer the questions to be answered.
• Build a proper value tree at least four to five levels in detail and ultimately 8-10 levels deep
• With equation-based level in a value tree, all branches can be added, subtracted, divided, or multiplied to obtain the level above. In many engagements, particularly organizational design and organizational issues, there are no equations as such.

WEEK 1-DAY 3: DEVELOPING THE MODEL ARCHITECTURE

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WEEK 1-DAY 4: DRAFTS OF WEEK 1 PLANNING DOCUMENTS

• It is important for the consultants to blend into the culture of the firm.
• The principle of “followship.” If Max sincerely invests in the development of his colleagues, these smart and capable people in the firm will support him, he will progress rapidly, and have a strong support base.

WEEK 1-DAY 4&5: WRAPPING UP WEEK 1

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WEEK 2-DAY 1: MINE SITE VISIT

• The best management consultants understand that it is impossible to properly advise a client without understanding the environment, culture, history, and challenges within the location where the solution will be implemented.

WEEK 2-DAY 2: CONTEXT AFTER THE SITE VISIT

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WEEK 2-DAY 2: DEBATING METRICS WITH THE CFO

• A huge mistake many consultants make is to try to answer immediately or without adequate reflection.

WEEK 2-DAY 4: ALL THE PLANNING IS DONE

• Ownership of the problem and solution is a prerequisite for success.

WEEK 2-DAY 4&5: DESIGNING & CONDUCTING FOCUS INTERVIEWS

• Business case development is not about model building. It is about understanding the business. The model and analyses are the means to the end, not the end itself.
• Focus interviews must always begin with the interviewer providing the background and details.
• It is best to have two people conducting the interviews: one person to manage the discussion and the other to take detailed notes.
• Use the interview responses to test their initial hypotheses/ideas
• Use the interviews as an opportunity to build allies for the engagement team.
• Order the questionnaire so that the critical questions are asked before the time limit is reached.

WEEK 2-DAY 5: FEEDBACK FROM THE FOCUS INTERVIEWS

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WEEK 3-DAY 1: PREPARING THE DRAFT STORYBOARD

• Having private office space is crucial. It must be secure so that the team can discuss confidential aspects of the engagement and, if needed, review previous consulting material without divulging the details to client employees.
• The business case team needs to prepare a story of their message so that everyone in the team can understand their thinking and provide feedback.
• There should be a story! The story should flow horizontally across headlines and vertically down an individual slide from the headline to the content and finally the kicker.
• The storyboard should never ever be a diary of the work done or analyses completed.
• The storyboard should be constructed before the data is ready, by assuming the results of testing the hypotheses, and not conveniently developed based on the data the consultant can find.
• The storyboard should not be designed around interesting data. It must always be designed around telling a story based on the required analyses to test hypotheses in the engagement.
• Only about five to 10 slides make up the gist, and the entire story should be captured in them:

WEEK 3-DAY 2: BUILDING THE MODEL

• Surprising a client is never ever an option.

WEEK 3-DAY 5: OUTPUT FROM THE FINANCIAL ANALYSES

• Standard protocol in presenting slides: Each slide consists of:
  • A headline
  • One piece of data analysis (typically a graphic) to support the headline
  • References, sources, and calculation approach fully described at the bottom of the slide
  • As little inappropriate text as possible since data is more important
• Always engage the frontline staff to test ideas and hypotheses. No amount of data crunching and spreadsheet analysis can replace the quality and usefulness of information found when testing findings with employees at the frontline who face the problems on a daily basis.

WEEK 4-DAY 1: PRESENTING FEEDBACK FROM FOCUS INTERVIEWS

• The focus interviews’ feedback should never be a data dump of all the feedback. The engagement team must analyze the results and only use the necessary and appropriate information to convey the true state of the organization.
• “Panel bashing“ is the term used when the slides (panels) are criticized and torn apart under the unyielding and rigorous assessment of the engagement team. It is the duty of the team to undertake the harshest possible assessment of the slides.

WEEK 4-DAY 1: PRE-PRESENTING

• Pre-presentations allow the engagement team to build trust and a relationship with the steering committee members.
• Consultants can rarely tell the client what to do. They certainly cannot do so in a meeting with a large client group. They can merely recommend and advise. A senior member of the audience needs to help reinforce the consultants’ message for it to have any traction.
• The engagement team needs to identify sources of resistance.
• An agenda is crafted around facts and personalities.

WEEK 4-DAY 2: IDENTIFYING QUICK WINS

• A quick win is defined as an opportunity that can be implemented and the savings banked quickly with limited disruption to the business. Quick wins are critical to raising morale.

WEEK 4-DAY 5: STEERING COMMITTEE MEETING

• The executive committee must be able to have frank and open discussions about the performance, culture, and health of the business.
• They needed to start the session by telling the audience what decisions needed to be made or what was expected of them.
• Typically, steering committees comprise executives who are closely linked to the operation analyzed and who can steer the engagement to benefit the operation.

WEEK 5-DAY 1: MID-ENGAGEMENT REVIEWS

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WEEK 5-DAY 4: SERVICES WORKSHOP

• Workshops almost always take longer than planned to achieve their objectives. A good rule of thumb is to plan the ideal agenda and then divide this by 3.

WEEK 6-DAY 1: WHAT IS BIG-PICTURE THINKING?

• A fundamental question that is at the heart of management consulting: “Are the consultants doing what is in the best interests of the client?”

WEEK 6-DAY 3: MANAGING A CRISIS

• Joining a consulting firm is not a prize, nor the prize. It’s the entry point to a process of constant evaluation, constant training, and constant culling of those who do not meet the standards to be a partner of the firm.

WEEK 6-DAY 5: OPERATIONS IMPROVEMENT & SERVICES FEEDBACK

• A consultant must over-deliver in terms of insight and quality, not the volume of slides, and be flexible to change their approach as understanding of the client’s situation evolves.

WEEK 7-DAY 2: AGGREGATING THE BUSINESS CASE

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WEEK 7-DAY 3: BUSINESS CASE SIGN-OFF

• The sign-off by the client is critical. By having the sign-off, the team has the explicit support of the executive who has approved the work.

WEEK 7-DAY 4: FINAL STORYBOARD

• An engagement team must present a recommendation that solves the problem they are studying and does not create an entirely new problem in another part of the organization.
• The correct solution will allow the entire organization to improve.
• Just because the business case team was separated as a work stream does not imply it should be a separate section in the final presentation.
• All facts, figures, assertions, and recommendations must be fully validated before they are presented.
• Getting a set of financial projections approved by the finance executive is one form of validation. Another equally powerful form of validation is to have line management, which will be affected by the changes, review the recommendations and provide their support.

WEEK 8-DAY 4: CONSULTING VALUES

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WEEK 8-DAY 5: DID THE ENGAGEMENT TEAM SUCCEED?

• You need to be excellent at analyzing problems and understanding their impact on the business.
• Experience is a competitive advantage when it helps you understand the context. It is an Achilles heel when it clouds the ability to look at hard data and draw conclusions based on the facts.
• The most difficult part is in understanding the question you are answering.
• If analytical brilliance is one building block, emotional intelligence is another. The ability to engage and work with clients who may not appreciate your presence or like working with consultants is critical. A consultant who is able to provide coaching and guidance to colleagues without demeaning them is a successful consultant.
• The most significant unstated objective is to assess the will, capability, and capacity of client executives to execute recommended changes.