Consulting — Has the Solution Become Part of the Problem?

Behold the growth of management consulting: industry revenues worldwide grew from $3 billion in 1980 to $22 billion in 1990.1 Expenditures on such services by U.S. companies grew from about $7 billion five years ago to almost $14 billion in 1991.2 It is the rare Fortune “500” company that does not use management consultants. In some companies, annual fees to the leading consulting firm are $10 million per year or more — in a few, significantly more.

Yet the following complaints are common:

Consultants are always hawking the latest fad, but when they leave we never seem to be much closer to achieving our goals.

Consultants tell whoever hired them what they want to hear, effectively becoming a rubber stamp for management decisions.

Consultants spend a huge amount of time gathering internal information and then tell us what we already know.

Consultants send senior people to negotiate but the work is actually done by a flock of junior people with little business experience.

Consultants never want to leave and constantly try to expand the length and scope of their work.

Consultants make recommendations that none of us understands well enough to execute with the required commitment and judgment.

Consultants make recommendations that only they can implement, leaving the rest of us disenfranchised and ultimately unprepared to manage without them.

These problems are not inherent in the client-consultant relationship; consultants can be powerful catalysts for productive change. But clients and consultants must make new choices throughout the process to ensure that the core tasks of managing stay with management —and are not subcontracted to outsiders.

We have identified four decisions that clients and consultants make, whether consciously or unconsciously, that are critical to how effective the work will be:

• Focus versus Fad Surfing. In a bull market for panaceas, it’s easy for managers to seek preprogrammed answers and for consultants to profit from selling them. But the company that relies on fads will lose focus on higher-impact actions.
• Accepting Responsibility versus Sidestepping Responsibility. Change requires decisions that are personally unpleasant for the client and therefore risky for the consultant. The consulting effort or new program therefore can too easily become a way to postpone or avoid making these tough decisions.
• 80/20 versus All-or-Nothing. Managers feel safer with a complete analysis before they make any changes, and consultants certainly benefit from comprehensive approaches. But an all-or-nothing effort often doesn’t move fast enough to make a difference.
• Gut-Level Involvement versus Head-Level Involvement. The traditional methods of relaying information — written reports and slide presentations — usually reach only the head level. But unless those responsible for managing the recommended changes are involved on the gut level, they will lack the commitment and judgment needed for successful implementation.

The purpose of this article is to help clients and consultants make better choices in these areas. We want to emphasize that we are talking specifically about consulting that is aimed at the core tasks of management, particularly strategy development and organizational design. We are not talking about the more limited nuts-and-bolts consulting in which the consultants function as extra “arms and legs,” providing supplemental capacity to execute a decision that has already been made or a direction that has already been set.

Focus versus Fad Surfing

Fad surfing — riding the crest of the newest panacea and then paddling out just in time to ride the crest of the next one — has been big business over the past twenty years. Here are just a few reasons why, in alphabetical order: business reengineering, change management, core competencies, customer satisfaction, horizontal organizations, learning organizations, management by objectives, overhead value analysis, service quality, strategic planning, time-based management, total quality management, and zero-based budgeting.3

Each of these concepts comes with a prepackaged set of tools, many of which existed previously and which have been repackaged and marketed as The Answer to competitiveness. These “solutions” don’t come cheap; they often require a multiyear commitment and total compliance to a specified process. Or, as the representative of one firm that specializes in business reengineering said recently, clients must be committed both financially and emotionally to the effort — with the financial side of such commitment running $100,000 to $700,000 in fees per month for twenty-four to forty-eight months.4

Let’s look at one example: total quality management (TQM). The TQM movement has significantly changed managerial mindsets and provided powerful tools. Yet the record of TQM programs in action raises concerns. For instance, Wallace Company, a 1990 Malcolm Baldrige National Quality Award winner, filed for Chapter 11 in early 1992.5 Florida Power & Light, the 1989 winner of Japan’s Deming Prize (and the first non-Japanese company to be so honored), has since simplified its costly and cumbersome TQM infrastructure and replaced its chief executive officer.6

Less dramatic but more worrisome are the findings of three recent studies on the results of TQM programs. Arthur D. Little found that only about one-third of 500 U.S. firms believed their quality programs have had a significant impact on their competitiveness. A.T. Kearney studied 100 British firms; only one-fifth rated their programs as having tangible results.7 Ernst & Young surveyed 584 companies in the United States, Canada, Germany, and Japan and reported that the TQM programs in many had not led to improved performance and in some had hindered it.8

What’s wrong? We believe that efforts to implement TQM programs have not been adequately focused on how the program will help the organization achieve its goals. Too often the TQM program becomes an end unto itself rather than a set of tools explicitly linked to the organization’s strategy.

One powerful way we have found to test and maintain the link with an organization’s strategy is to start with a simple premise: the prerequisite for any organization to meet its goals is to give its customers what they see as a good deal, to do so at a profit to itself, and to adapt this good deal at a profit over time to meet changes in the environment (see Figure 1). Managers can use this rule of thumb to create focus by answering three questions:

1. How will this effort help us to understand or improve the deal we offer to customers (e.g., our price for the bundle of benefits we give our customers relative to what our customers want and to what the competition offers)?
2. How will this effort help us to understand or improve our ability to deliver a good deal at a profit (e.g., our costs for the bundle of benefits we deliver relative to what our customers want and to what the competition can do)?
3. How will this effort help us to understand or improve our ability to deliver this good deal at a profit to meet future changes?9

The unanswered question for many TQM programs is how better quality will affect both the good deal for the customer and the company’s profits. Companies like Florida Power & Light may increase the good deal to the customer by some measurable amount while increasing their internal costs by a greater amount. After all, anyone can offer a better deal if they spend enough; the trick is to provide this better deal while generating adequate profits.

Or consider overhead value analysis, value engineering, and business reengineering efforts. The often-unanswered question here is: How much customer value is cut when the costs are cut? Clearly, if the reduction in costs is less than the reduction in product benefits, trouble ensues. Yet this is a common occurrence. When Carlson Travel reduced its travel agent staff by 17 percent, for example, some customers perceived a decline in service and defected.10

When companies have more than one program and consulting project going, as many do, the three focus questions can help them to determine whether and how all these efforts are contributing to future performance — and to track all the fees and organizational time being dedicated. The answers are sometimes surprising.

Accepting Responsibility versus Sidestepping Responsibility

Accepting responsibility is most difficult when the decisions that need to be made are tough ones, decisions that at best lack the comfort of the tried and known and at worst are personally distasteful to either mandate or implement. For most people, giving up old ways of doing business are the hardest decisions, whether that means revamping cherished ways of thinking about what the customers do (or should) want, abandoning long-desired plans for new capacity, or revising time-honored rules of thumb about what it takes to get employees to do the right things.

Not all consulting efforts involve tough decisions, of course. Sometimes companies are really purchasing a rubber stamp study. They want an external source to say that a certain investment or change in strategy is warranted or that certain cuts or changes in personnel policies are necessary. Sometimes the work done in such studies really does bring a fresh perspective and better results. For the most part, however, the primary role of the consultants in this kind of effort is to provide credibility and packaging; managers do not want the consultants to identify issues that don’t fit the already preferred answers.

The situation that concerns us here, however, is when tough issues are part of the explicit agenda. In this case, both parties can sidestep responsibility; the client can avoid seeing or acting on difficult problems and the consultant can avoid uncovering and highlighting them. But unless both client and consultant accept responsibility, they will be unlikely to create meaningful change.

From the client’s perspective, it’s never easy to receive information that goes against one’s expectations and preferences.11 And who wants to pay for pain? It’s easier to look at other issues that, while important, are less painful than the most critical ones. In addition, clients often assume, without explicit discussion, that if the consultants see any tough issues, they will bring them up for discussion.

From the consultant’s perspective, bringing up the tough issues is neither the fastest way to win customer satisfaction nor the easiest way to win new clients. If raising these issues is not part of the explicit charter, doing so may seem foolhardy. For consultants who come from organizational cultures in which the client is king, this dilemma is particularly acute.12 Yet even when clients say they want to face the issues, their signals may tell another story. Or, as movie mogul Samuel Goldwyn once said, “I don’t want any yes men around me. I want people who will tell me the truth even if it costs them their jobs.”

The inevitable results of sidestepping responsibility are massive amounts of work and high fees — while the tough issues go unaddressed and the company loses the most valuable resource of all: time. Worse, the client may assume that all is well when quite the reverse is true. The question for clients is: Should this work help us see the tough issues? It’s legitimate for the answer to be “no,” of course. But when the answer is “yes,” the client and consultant must both be prepared for the discomfort of raising and working through the tough issues.

80/20 versus All-or-Nothing

New programs often come with warnings that those who embark on the process must be committed to the entire, often multiyear, journey. Consultants frequently use the “MECE” standard — mutually exclusive, collectively exhaustive — to ensure thorough analysis. But such completeness requires extensive resources over long periods. An alternative is to go by the 80/20 rule, which states that 80 percent of a goal can often be gained with 20 percent of the effort and the remaining 20 percent of the goal often takes 80 percent of the effort.

Clearly the 80/20 rule doesn’t apply to everything. One wouldn’t want to apply it to neurosurgeons or airline pilots. (Although one JAL pilot tried to do just that when, during an investigation into why he landed in San Francisco Bay rather than at San Francisco airport, he reportedly said, “Considering that I traveled all the way from Tokyo, how much did I miss by?”13)

Those types of situations aside, the advantage of applying the 80/20 rule to many consulting efforts is its power to get companies moving faster — and to save on fees. Since the world is changing fast, if you can get 80 percent of the way there in 20 percent of the time, you have a head start on monitoring and revising your strategy, a form of strategic continuous improvement. In these cases, following the 80/20 rule may lead to better results than going for a 100 percent solution.

Another reason that the 80/20 rule works well is that companies typically have hidden caches of data. Although companies often hire outsiders to develop an independent fact base that is intelligently collected and analyzed, in our experience a surprising number of organizations already have enough of the necessary information to identify what needs to change, how fast, and the options for doing so quickly and effectively.

Perhaps this shouldn’t be surprising. After all, in most organizations various people in various places have done some of the essential market research, strategic analysis, and listening to key constituents. What’s often missing is not the facts but an aggregation of all the pertinent data, ideas, and observations, organized in ways that create better explanations of how the business now works.

Fact finding, therefore, doesn’t necessarily require massive financial investment. It does require managerial investment to find out what is known, thought, and feared within the organization and then to use this information to face the tough issues. Sometimes assembling this database requires allowing those who hold the information to tell what they know or think confidentially, especially when the facts and ideas don’t match the expectations and preferences of senior management.

Similarly, creating insights out of all of these facts doesn’t necessarily require massive investment in frameworks, matrices, computer models, and the like. Asking the tough questions that arise from the data and ideas that have been assembled can often be enough to highlight key assumptions that, if wrong, will have a major effect on the organization’s future. A simple grid can be used to do this (see Figure 2). These are the tough issues because they challenge the current plans.

Using these issues as the agenda for shirt-sleeves-up working sessions can provide a fast way to adjust course and to identify where more data are needed. A two-day meeting of this sort led one senior management team to confront the possibility that a long-cherished $200 million capacity expansion, although exactly the right configuration for the 1970s when the plans were first formulated, would likely lead to bankruptcy in the 1990s. Working through the numbers on a white board, the managers quickly scrapped the original plans and developed and implemented a new approach, better suited to the organization’s competitive position. At another company, a similar process led to a slight revision in the overall strategy but far more focused plans for the most critical activities, to turn the strategy into reality.

Such processes are not adequate for those companies hopelessly locked into outmoded ways of thinking about their businesses. For others, however, using the facts they already have provides a valuable head start.

Gut-Level Involvement versus Head-Level Involvement

Most findings from consulting efforts are delivered through written reports and formal presentations. But reports and presentations are intellectual mechanisms; the people who are to mandate or implement the actions must believe and understand in their guts what they need to do and why. Otherwise, they will develop neither the commitment to see the effort through nor the judgment to manage it.14

Information that reaches only the head is not a reliable source of commitment. When the head and the gut are in conflict, the gut almost always wins. Nor is such information a dependable source of judgment. Good judgment comes from an understanding that is broad and deep enough to inform decisions under conditions that are new to the decision maker.

When learning is only intellectual, management action on recommendations made by outsiders tends to be sporadic and unpredictable. Several symptoms of this problem can become evident. One symptom is the never-ending consulting engagement, in which the whole point of hiring consultants seems to be to slow down the change process. Another is the undone “to do” list, in which the only action is adding items to the list. The new CEO of a major publishing house, having just taken emergency steps to avert a crisis, was confronted by a corporate officer of long tenure who wanted her to be sure that she understood that she wasn’t so smart — all the actions she had taken “have been on our ‘to do’ list for five years.”

The cure for these symptoms is not, in our view, for the consultants to take over the implementation. That dangerously disenfranchises managers. Rather, the consultants must ensure that the information makes gut-level sense to the people who must oversee the change. The best way that we know to do this is to create truly interactive processes in which the clients work with the key data.

Many consultants would argue that they already use such interactive processes and that they already share the “intellectual capital” from consulting engagements with their clients. Typically, they point to frequent meetings and the existence of client members on their teams as proof. Such mechanisms, although steps in the right direction, rarely reach the guts of the people who have to mandate or execute the recommended changes. Meetings, even those involving the key decision makers, are not necessarily “interactive processes” more often they are sessions structured around reports and presentations by the consulting team — head-level involvement. Conversely, client team members, who do get their hands dirty in the data, usually cannot mandate or implement the changes without the buy-in of more senior managers. The frequent result is client team members who become neither fish nor fowl: they go through a process that changes their mental model of the organization and its needs, but few people around them, especially their managers, share the same gut knowledge.

In contrast, the principle of gut knowledge suggests that the people who must manage, oversee, or agree to the recommendations must be involved in creating them We suggest the following mechanisms:

• Use the 80/20 rule so senior managers can participate and still do their jobs.
• Do quick surveys, often by interviews, to find the data that already reside somewhere in the organization.
• Provide the data in an easy-to-use form — fact books, short presentations, computer simulations, or even (most often the most useful and least expensive form) a set of “rude questions” that challenges the participants on those core assumptions that, if wrong, would have a major impact on the organization’s performance.
• Provide frameworks that help people use the data they have and identify what data are missing but necessary.
• Use small numbers of senior consultants as catalysts for short periods of time rather than large teams of inexperienced consultants for months on end (see Table 1).
• Replace the volumes of recommendations with working sessions (attended by the people who will be charged with taking the actions) to decide what to do, who will do it, and by when.
• Build in a follow-up mechanism to track progress on the “to dos” and to evaluate when and how to adjust course as conditions unfold.

Has the Solution Become Part of the Problem?

Has consulting become a hindrance to corporate performance? In many instances, yes. But the alternative we have briefly outlined can reform the client-consultant relationship.

This alternative is not for all situations, all clients, or all consultants. For clients, it means more pain during the process and more time commitment from the people whose buy-in is essential for implementation. For consultants, it means far shorter engagements with smaller, more senior teams of consultants. On both sides, such a process requires far greater involvement in intensive, interactive problem solving.

Obviously, other variants of the process exist, and both clients and consultants must continue to experiment with other approaches to make the client-consultant relationship more productive. Given the nature of the issues involved, the magnitude of the expenditures on consulting services, and the percentage of gross domestic product represented by client companies, none of us can afford not to search for better ways.