867: Be a professional, don't be a business person (Case Interview & Management Consulting classics)

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Speaker B: I sit and speak to people or interested candidates roughly maybe 2012 to 15 times a day, whether it's by email, Skype, messaging, or maybe even phone calls. And beyond that, we also speak to our own candidates. And one of the things we really try to understand when we speak to people is their understanding of what the consulting culture or philosophy is. And when we speak to people, we invariably tell us, well, the consulting culture is one of hard work. It's one of being analytically correct. It's one of helping clients with their toughest issues. And to be fair, that is not what the consulting culture is like. That is what you see the consulting culture to be, but that is not what it is. That is what you do as a consultant, but it's not what the culture is. Let me explain this in a different way, right? There are too many consulting firms, management consulting firms, for me to name. There are thousands of them, from the large and established firms to the prestigious elite firms to the smaller boutique firms, and also the smaller partnerships that serve, uh, very niche issues a business may face. So there are a lot of businesses, but what defines them? What separates them? Even if you look at just the top 10 firms in terms of size and prestige, they tend to hire from the same places. Sure, I mean, Harvard sends a lot of people to McKinsey, but Harvard also sends a lot of people to Deloitte and Booze and BCG and Bain and so on. These people pretty much did their undergraduate education at the same schools. They had been through the same experiences or similar experiences for the MBA programs. They studied from the same textbooks. They have the same friends. They pretty much reading, uh, the same material even on consulting projects. Sure, consulting firms have their own ip, but even so, if you want to understand something, for example, credit derivatives, you have to go to the leading authority on that subject, and that will be some textbook from MIT or Wharton. They travel in the same circles, they fly the Same airlines, they use the same laptops, they all use PowerPoint. So invariably most do. They all write in the same way. They all go for similar training programs, executive or otherwise. So what distinguishes the great consulting firms? Well, what distinguishes them is the culture. And I would say the culture is different. Today I want to talk to you about what the culture of consulting really is. And I think that the most important thing is to distinguish it from what people think it is. So I think there are five parts here that maybe, uh, four parts that distinguish the culture of consulting firms. And we'll talk to each one. The first one is the way consulting firms make or do not make promises. The second one is the way they manage confidentiality. The third part is ethics. And the fourth part is placing the best interest of clients first. And each of these things are misunderstood by just about everyone we speak to. You speak to any graduate anywhere in the world, and they'll give you a very superficial view. In most cases, a total misunderstanding of what these four elements are. So let's talk about promises. Good consulting firms. When I was a consultant, we were trained never to make promises to clients. I mean, we would never promise a client or guarantee anything we did for them. Why? Because there's no way for us to guarantee what would happen. We had no control over what was happening in the industry. Moreover, we had no control over what was happening at the client. If we prepared a strategy for a client, or even an implementation plan, an operations plan, we had no control over the client's ability to implement that plan. Although we could predict what would happen with competitors responding to the client's actions, we had no way of knowing how the client would then respond to the competitor's reaction to the client's original action. The point is, you should never make promises to a client. And that's a very important sign. When you look at consulting firms, consulting firms that promise are, ah, doing a disservice. No services business can make a promise because you do not know what will happen. And a great example of a promise is advertising. In my opinion, consulting firms should not advertise because an advertisement is ultimately a promise. Think about it carefully for a second. When you see an advert for a BMW on your television or wherever it is, if that advert conveys an image of an ultra luxurious lifestyle, the advert is invariably making a promise that that is the lifestyle you would have if you buy the car. An advert is a promise. And when you buy the product or buy the service, you expect that promise to be fulfilled through that Product or service. Consulting firms cannot do that. And therefore, consulting firms should not make promises and should not advertise. And to me, it's very disappointing when I see firms advertising in the press and making promises. Also, some firms try to get around this by saying, we just advertise what we do. Consulting firms should never advertise, period. Because when you advertise, you make a promise. And consulting firms can never make a promise because you have no control over what will happen after you undertake the project. The best you can do is you can say what you'll attempt to do, but you can never guarantee any results, and therefore, you should never advertise confidentiality. Uh, this is something that I've seen so many times, it's actually shocking to me. I've seen firms that, when they bid against us on projects, uh, the clients would tell us, your client said your competitor said that they'd done this project for this client, blah, blah, blah, and so on. The bottom line is that a lot of firms say they maintain confidentiality, but they do not. They are quite happy to talk about work they've done at other clients. They're quite happy to show work they've done at other clients. And I would say, in my opinion, most firms are really poor at this. They all say they maintain strictest confidentiality, but the reality is many do not. Many share information, many change data, and they show it. In fact, what I see very common happening is that, let's say, I'm not going to name any companies that do this, but let's say a company's new, uh, York office has done a very important project for, let's say, Pfizer, the New York office doesn't trust the Sydney office in Australia. So they don't share the data, uh, from the project they did for Pfizer in New York with the Sydney office in Australia. And they say that's confidentiality. But what they actually do is the New York office then feels that since they understand the client the best, if the New York partners are in the meeting, they are happy to talk about it. Confidentiality means no matter who is in the meeting, you will not talk about it. And I find many clients break this rule. In fact, I think clients would actually cringe when they see how firms treat or how poorly they treat confidentiality. So confidentiality and making promises. At the core of management consulting, you don't make promises and you do not divulge confidential information under any circumstances whatsoever. Let's talk about ethics. Now. Let's just define ethics here, right? Ethics is doing the right thing when the law is not extended to cover that particular area. Because if the law had already been extended to cover that particular area, then you wouldn't be worried about whether it's ethical or not, because it would be illegal. So always remember that doing something criminal and doing something unethical are totally different issues. If the law already covers an area, you wouldn't be talking about ethics, you'd be talking about criminal charges. Ethics applies when the rule of the law or the guidance of the law has not been extended far enough to cover this area. And ethics applies to a number of areas. But in many cases, because consulting firms are not regulated, while consulting firms not belonging to Deloitte or the auditing firms are not regulated, ethical rules do apply. And, uh, my opinion is that many consulting firms are not ethical. They do things that go against their belief. And, I mean, there's a great paper that was written in the Harvard Business Review about this, which talks about, uh, espoused values versus practiced values. And most people, when you ask them the kind of values they live by consultants anyway, they'll talk about what they think they are doing, their espoused values. But when you look at what they actually do, what they actually practice, it's totally different from what they espouse. And ethics is very simply this. The rules of confidentiality, keeping promises, putting the client's best interest first. Do you do those things when no one is looking and when the rule of law doesn't apply to you? And I'm saying most cases, people don't actually do that. In fact, most consulting firms are quite happy to do whatever they want to gain work because they don't think it's going to hurt them. Um, in fact, if you look at most consulting firms, if you look at the way the partners and the senior managers are rewarded, it's not on their value system. It's about the money they make. I mean, most consulting firms, if you look at the fundamental metrics on which partners are rewarded, it's the amount of revenue they generate. If you are rewarded on revenue generation, then that is not the way to run a consulting firm. You should be rewarded on your ability to serve clients to the best of your abilities. If you do that well, then everything else will work. The money will follow. So that's about ethics. Now, let's talk about best interest, an area that is vastly misunderstood, because one of the core principles of management consulting is to put the client's interest first. And what does that mean when I mention this to most people? They Think, well, it's easy to do. It means making the client happy. And I explain to them, actually that's not what it means. It's not about making the client happy. And let me explain why it's not about making the client happy. Let's assume you have a client. Let's pick, um, a company like, let's say McDonald's. Right. McDonald's wants to leverage the rising healthcare trend by buying a competitor's business that sells healthy products. Now, you've done work for McDonald's before and you understand the business because you're a consulting firm that's worked for them a few times before in this strategy. And you realize that this is not going to solve McDonald's problems. Actually, you know full well as the partner that this is a short term solution to bump up their share price. But in the long term, they can't create a separate business. Focus on health can still have the business that focuses on selling messy foods that are greasy. You realize the only way for McDonald's to change is to become a truly healthy business and not just have health as a separate division. And you understand that McDonald's is going to spend billions of dollars buying this healthy, uh, franchise, but it's not going to solve their problems in the long term. So you, you know that if you turn down this assignment, it's a couple of million dollars that you will lose. But you know in your heart that it's the wrong thing for them to do. Now, putting the client's best interest first is telling McDonald's, look, we know that if you do this, it's not going to solve your problems. And we don't think you should do this. And we think if we go ahead and do it, it's really not going to help you. So we'd rather not be involved in this engagement because it's not going to solve your core problems. Very few consulting firms are willing to do that. I know of only a few that have done it. Really. I mean, I know that. I've heard of stories of Roland Burger doing it. I know of stories of McKinsey doing it. I don't know whether they've done it recently. I've heard of stories of Marvin Bauer doing it in his time. I've heard of stories of Bain doing it once or twice, BCG Partners doing it. I've seen them do it several times. But it is very hard to do that. Consulting partners and consultants will justify it any way they want to get the revenue, because at the end of the day, they're Metrics, they are awarded on revenue. It takes a truly magnanimous consultant, uh, a true management consultant, a true professional who is willing to stand up to a client and say, this is not in your best interest and I don't think we should do it, and will actually walk away from the project. And let me tell you something, most clients will be pissed off if you do that. So when you say putting the client's best interest first means making them happy, then you don't understand what it means to place a client's best interest first. Many times when you place a client's best interest first, you make the client unhappy. You make them unhappy. But if you did what is truly right in the long term, they will understand what you did was right and they will come back to you for more work. When I was a, um, consulting partner, I've turned down clients sometimes and said, this is not in your best interest, I don't think we should be doing it. Of course they were unhappy and they've complained and so on. But in the long term, they always come back to you and say, look, what you said was right and nobody is willing to do that. And we actually were quite impressed that you were willing to put your standards and your ethics first and we would like you to work for us now. Where you apply this rule counts if you're working for some junior manager who is rewarded not for the long term success of a business. If you turn down work, it's not going to work, he's going to be upset for the rest of his life. But if you are working for the board of directors and if you turn down work, it does work. So if you're working for a consulting firm that's not working at the highest levels, this principle doesn't apply because unfortunately, the lower you are in the organization, the less you have the ability to firstly see the long term potential of a business and secondly be rewarded for it. But the point is, putting the best interest of a client first is difficult. In fact, if you work in a firm that is really chasing revenue, a smaller consulting firm, and you are rewarded for revenue, I can assure you that if you put the best interest of a client first, you may be fired or you'll be told that's the most ridiculous thing you've ever done. So it's difficult to do this. It's really difficult to do this. I'm going to tie up the concept of not promising, maintaining confidentiality, applying ethics when you're not being watched, and putting the client's best interest first. In two areas. I'm, um, going to tie it up in the way you sell work. I've met many consultants who tell me, michael, how do we prepare proposals? But I always tell people, you know what, I've never actually prepared a proposal in my life. Most of the work I've done is I've met clients over dinner. I, um, speak to them, I send them emails, and I write them a very thoughtful letter. Sure. My letters go on to be 10, sometimes 15 pages. I know, I admit they can be long, but they're not proposals whereby I explain the firm's competency, where we've done the work before. I don't do those things. I've never done that. I'll, um, meet the client a few times and I'll sketch out what they want us to do. What m are the challenges they're facing, what are the considerations, what does good look like, why they're doing this, how they want us to do it. And then I'll write them a thoughtful letter. And the letter isn't easy to write. It's not something that I pin together. It takes me a few days to write it. But it's a very considered letter where I will sketch out, you know, this is the way we've understood the problem. This is the way we've developed the program over these discussions. This is why this problem exists. This is what the firm is trying to fix by addressing this problem. This is the way we'll do it. Not promising results, but I explain the way we'll go about solving the problem and what I think the analysis would look like and why we're doing it. Not what the results would look like, because I have no idea what the results would look like. You know, you are practicing these concepts, in my opinion, when you are not developing proposals, but you are writing letters to clients. Understand that. Because if you're not making a, uh, promise to a client, you shouldn't be putting together a proposal. If you have the kind of relationship with a client whereby you can put their best interest first and get away with it, that means that you are so close to a client that you don't have to put together a proposal. They know you and you can write them a letter. Of course, there are exceptions to this rule. If you are doing work for governments or state owned enterprises, they do have to go through a standard procurement process, no matter how close you are to the organization. In those cases, you may have to put together proposals, but even so, no promises. Do not break the rules of confidentiality. Do not Be unethical and you put the client's best interest first. Those four tenets of consulting culture should never be broken. Let's talk about metrics here. If you are a senior manager, manager, principal partner, whatever it is at a consulting firm, and one of the metrics in which you reward your people is revenue, profitability, and so on, if that's what you are doing, then you are wrong. You are creating a culture where people will do whatever it takes to generate revenue, even if it's not in the client's best interest. And you are creating a business that will fail in the long term. Uh, sure, you will justify this in whatever way you want, but let me tell you something. When you have the power, when you have the confidence, when you have the ability to tell a client, look, I'm not comfortable doing this for you. I do not think it's what is right for you. The dynamic of a relationship changes 180 degrees. I've never met a client who loses respect for me when I can explain why I don't want to do something, but I can explain it articulately and explain why this is not in their business. I've never met a client who will say, hey, what you're doing is terrible. We don't want to work. Clients are angry. Yes, I've had angry clients. But when I sit down and have the discussion and I really put the interest first and explain to them why I don't want to do this, and I have a really justifiable reason. I've never met a client who would walk away. But the fact that I'm willing to walk away from that money, I'm willing to actually hurt my profitability, means the client understands that, well, they're not doing it for the money. And that is the core concept here. If you measure yourself on profitability, you will never be profitable. If you measure yourself truly on your ability to help people, and I mean truly to help people. Everyone says it, but very few people practice it. In fact, do not look at a firm's mission statement, value statement, and so on. When you see what the firm is like, sit in on the bonus discussion. Sit in on the discussion on how they would retrench people. If the discussion comes up, this person is not bullable. This person did not generate enough revenue. That firm, um, is not living the values that they proclaim. The key thing is how a firm values value. That's very important. Is a firm values based or value based? Value based firms measure values. Based firm measure values that you have and if you're a value based firm, then you are looking at billable hours, profitability. In fact, the worst thing I've ever heard. We sometimes get invited to boutique firms to sit in on their discussions. I, um, must point out we never accept fees for this because it's a conflict of interest. But we do sometimes sit in these discussions. We're sitting in a discussion for one of the world's five largest consulting firms, and they asked us to sit in a discussion. They were having this debate about how they should allocate bonuses to their senior consultants. And I heard this and it made me cringe. And one of the partners said, well, this guy only has 50% billability. It's his job to find work. I actually didn't say anything in the discussion because it m wasn't my job. But afterwards I did pull aside the partner and I said, hey, hold on a second. The overall billability of your firm is only 70%. If you don't have enough work to go around, how can you expect a senior consultant to get enough work? How can you punish him for not having enough work? It's not his job to find work. So why are you punishing him for something that he has no control over? That's my first problem. My second problem is that have you told this consultant he needs to be billable? That's my second problem. And my third problem is even if you did the first two, it's still wrong. Because a consultant's problem is not to be billable. That's your staffing office. Your staffing office is meant to look at this consultant and say, is he billable? And if he's not billable, shouldn't you have addressed this a lot earlier? Why is it coming up in his performance review? My fourth problem is that a consultant's job is not to be billable. His job is to learn to be a good consultant. So forget about his billable hours. Is he a good consultant? Is he able to solve client problems in the best possible way? Is he able to put the client's best interest first? Is he able to analyze things correctly and produce analysis that actually gives thoughtful recommendations that can be implemented? There is no correlation between the quality of his work and his billable hours. In fact, I would like you to look at the reviews these consultants got rather than their billable hours. And you should reward people that got outstanding reviews. They have no control over their billable hours. And to be honest, that's the last time we ever sat in a performance review with that particular firm. And it's one of the world's largest firms. So what makes a great consultant has nothing to do with your analytical skills. And to be frank, a brilliant consultant without any ethics or any values is a scandal waiting to happen. And Rajat Gupta is a fantastic example of that. So when you ask yourself what makes a great consultant, it has nothing to do with the analytical skills. Sure, you need to have that, but that's an entry level. It's like being able to say you need to read English before you can be a consultant. The analytical skills allow you to play in the game. To win at the game, you have to have the right value system and the right ethical basis. So it's very important you understand this. The culture of consulting has nothing to do with your ability to analyze a spreadsheet. And when people tell me that, you know, Michael, I'm really strong at analysis, I mean, my eyes glaze over. Because, yeah, sure, you're strong at analysis, but that doesn't make you a great consultant. And in the long term, if that's what you think, you will never be a great consultant. A great consultant takes the pain of their client personally. And when I say takes the pain, I mean they actually take the pain where it hurts on their bottom line. And they live by their principles. There's no point having principles when you justify it away when you need to apply it the most. Always remember that the culture of consulting has nothing to do with the ability to analyze a problem statement. It's the ability to live by very tough values. And I tell this to the consultants we place in the top firms. We advise many of them. You are going to be tested on a daily basis. Do not take the shortcuts just to look good practice to do things the right way now when it's harder. Because when the time comes, when you're in the senior level, if you've crossed the line, you can never go back. I heard this phrase in a movie, and the guy said, you know what? I'm, um, m an honest man. I've only committed a crime once in my life. And his colleagues tell him, you only have to cross the line once to be a criminal. And I mean, this is what applies. Do not justify away lapses of ethics and values. You do it once, that's it. You're not a, uh, professional. You're a business person. And management consultants are not business people. We are professionals. We should be holding ourselves to the highest possible standards. It doesn't matter what the legal system thinks of us. It doesn't matter what business thinks of us, if we did something wrong, it should be enough for us to know that we've crossed the line. Our code, uh, of ethics is the only code that applies. And as soon as you breach that, you've crossed a line. The culture of consulting should be taken seriously. So I'll end this podcast. It's a long podcast, but obviously, you know, it's very close to me. Be a, uh, professional. Don't be a business person. Do not chase profits. Chase the ability and the wherewithal to do what is right. Profits would come, but don't chase profits.

Speaker A: As we wrap up, today's podcast is sponsored by strategytraining.com if you want to strengthen your strategy skills, you can get the overall approach used in well managed strategy studies as a free Download. Go to firmsconsulting.com overallapproach and if you are looking to advance your career and need to update your resume, you can get a McKinsey and BCG winning resume template example as a free download at www.firmsconsulting.com resume PDF.