Election lessons for consultants

16/11/2012 § 4 Comments

One of the curious stories out of the US presidential election is about the consultants on the Romney campaign. Apparently, they made a lot of money:

Much of Romney’s operation, for example, appears to revolve around a close-knit
group of insiders at American Rambler Productions, which took in more than $160
million through mid-October, records show.

That’s some gravy.

And what did the campaign get for this money? Here’s one thing they got:

If you spend your time watching politics and haven’t been hiding in a deep depression since Tuesday, you’ve probably been hearing a lot about “ORCA.”  According to the Washington Post, ORCA “was designed as a first-of-its-kind tool to employ smartphones to mobilize voters, allowing them to microtarget which of their supporters had gone to the polls.”

There is now widespread condemnation of the program as being sloppy and poorly deployed.

They say that the truth is the consultants essentially used the Romney campaign as a money making scheme, forcing employees to spin false data as truth in order to paint a rosy picture of a successful campaign as a form of job security.

The last paragraph spreads the blame around — consultants and employees. Clearly, though, there is some consternation about having paid for all these consulting services and not getting a working product.

Hey, consulting isn’t all rainbows and unicorns. Most projects work but some don’t. It isn’t unusual for clients to be a bit unsure about what they want. They may not figure it out until you deliver to them the wrong report. Then you have the clients who do know what they want, but it doesn’t accord with, um, reality.

What’s a consultant to do? I figure there are three strategies.

  • One strategy is to give the people what they want. You figure out what the client really wants, and then deliver it. People know what they are getting when they hire you. This approach keeps people happy — short term. There are two weaknesses to this approach. First, you aren’t really helping the clients. The answer they want may not be the right answer, so they end up with the wrong information and eventually that will have consequences. Secondly, third parties also know what you deliver. Whatever your advice, right or wrong, it’ll be suspect.
  • The second way is even more cynical. You promise what you know the client wants, and deliver the cheapest result you can get away with. An election is an interesting consulting problem. From the consultant’s point of view, the client is transient — it disappears the day of the election — so you have to get payment beforehand. From the client’s point of view, the consultant is only as good as the results, which are apparent only on election day. It’s easy to see how the ORCA debacle can happen, how a client could pay for a shoddy project.
  • The third strategy is to play it straight. You work on understanding what clients want. You tailor your research to their needs. But you also do the work as best you can, honestly, with (in the case of economic research) one eye on theory and the other on the data. Some projects won’t work out; some clients will have a different view of the world and won’t like yours. Those projects you have to take on the chin. Most projects, though, should go well, and most clients will be happy, and you’ll get a reputation for quality and consistency.

I prefer the third approach. It suits my personality and it seems to work for me. The first two sound like far too much hassle, trying to keep people happy and stay one step ahead of expectations.

But let’s not be naive. Some consultants will work the first two strategies. With $160 million up for grabs and accountability disappearing on election day, it shouldn’t be a surprise that the Romney campaign ended up landing an ORCA.

Leadership, the consultant’s perspective

02/11/2012 Comments Off on Leadership, the consultant’s perspective

Last one! This is the fourth of four posts on The Leadership Challenge, by James Kouzes and Barry Posner, and looks at it from a consultant’s viewpoint. Prior posts took different perspectives: literary, psychoanalytic, and economic. Looking back over them, I haven’t been too supportive. The book has the literary value of a romance novel, the self-help value of a fad diet, and the economic value of a penny tech stock.

For a consultant, though, it’s very useful.

First, it tells you something about the mindset of the kinds of people who consume these books. Secondly, it’s a good explanation of how to provide guidance to a client. Let me explain both points.

Mindset first. As a consultant, you are working with all kinds of people. You have to be able to listen to them, understand the text and subtext of their messages, and frame your communications so they make sense. These sorts of management books are popular, especially with executive and aspiring executive types. They give you a chance to see what the concerns are and what the language is. Then, as a consultant, you can position your work to reflect them.

Using these books explicitly can also mark you as one of the tribe. The Art of War was very popular a few years back. It still pops up, but not like before. One of the stories emphasises decisiveness:

[A]rrangements were made to bring 180 ladies out of the Palace.  Sun Tzu divided them into two companies, and placed one of the King’s favorite concubines at the head of each….

So he started drilling them again, and this time gave  the order “Left turn,” whereupon the girls once more burst  into fits of laughter.  Sun Tzu:  “If words of command are  not clear and distinct, if orders are not thoroughly  understood, the general is to blame.  But if his orders ARE  clear, and the soldiers nevertheless disobey, then it is the  fault of their officers.”

So saying, he ordered the leaders of the two companies  to be beheaded.

The Leadership Challenge suggests that this sort of management by punishment is exactly wrong. Instead, team members have to know that it is safe to make mistakes. This increases the willingness to try new ideas, and increases the willingness to identify things that aren’t working and stop them.

When talking with your client, should you communicate execution or consultation? results or process? The management book-of-the-month club will help you decide.

The second way I found the book useful was in thinking about the consultant’s role. The Leadership Challenge describes leading without position or hierarchy. Often, that’s exactly what consultants have to do.

Consultants are external to the client’s organisation, and bring skills and knowledge that the client doesn’t have. They are trying to show the client a new way or demonstrate new thinking. As outsiders, though, they have no official clout, no institutional leverage. It isn’t enough to show up and say, ‘We’re the experts, here’s the answer.’ To be effective (and to be desired), consultants have to lead clients gently. They have to understand the values, align the project with the values, engage the client with the new direction through those values, and the encourage the client to make the new knowledge their own.

I have tended to think of consulting as providing advice. Since reading this book, I also see that there’s an element of leadership. That’s something I’ll want to integrate into my communication. At least until it goes out of style.

How to save 40% on benefits

13/09/2012 § 9 Comments

The latest estimate of benefits costs has come out of MSD. The report is an actuarial estimate of the present value of future payments to beneficiaries. The headline number is $78 billion.

I can save MSD 40% of those costs. I won’t even charge them for the advice — nope, this is a public service. Here is a chart of the results:

MSD’s costs are the total area shown. The costs of my plan are shown in green. The savings to MSD are in blue.

Ready?

Here is my proposal:

Use Treasury’s standard discount rate.

Yeah, simple, I know, but sometimes the simplest ideas are the best.

See, MSD and Treasury got together and gave the consultants who wrote the report an extra-special, one-time-only set of discount rates. A colleague alerted me to this — I’ll let the person claim credit in the comments. There it is, Table 5.3 (notice the use of the technique, hiding it in plain sight). I’ll put the rates below, alongside the standard Treasury rates that most of us have to use when evaluating research spending, social spending, roads, dams, etc.

Year Special Standard
2012 -0.31 8.00
2013 0.65 8.00
2014 1.11 8.00
2015 1.51 8.00
2016 1.84 8.00
2017 2.12 8.00
2018 2.34 8.00
2019 2.53 8.00
2020 2.67 8.00
2021 2.78 8.00
2022 2.87 8.00
2023 2.94 8.00
2024 3.01 8.00
2025 3.06 8.00
2026 3.09 8.00
2027 3.13 8.00
2028 3.15 8.00
2029 3.17 8.00
2030 3.19 8.00
2031 3.20 8.00

Simple, yet effective.

You’re welcome.

 

Making those sales

27/07/2012 Comments Off on Making those sales

Consultants are salespeople. There’s no way around it. They are small business owners and, like most SMEs, need to spend 15% to 25% of their time on ‘business development’, a.k.a., sales.

In an earlier post, I showed the trade-off between paid time and sales time. The efficient way to improve revenues is to improve sales activities — as opposed to just working more hours.

How do you do that?

First, you have to realise what constitutes sales, and what’s just messing around. Sales skills involve getting from ‘it’s been a lovely chat’ to ‘sign here’. They are the tools you use to encourage people to give you money for your services. They include presenting your capabilities, finding where the work is, identifying the decision makers, and making a pitch (not necessarily in that order). If all you’re doing is talking about how great you are, or discussing interesting ideas with random people, you aren’t selling. That might be marketing or networking, but it isn’t sales. For sales, the other person has to have money and the willingness and authority to spend it. You also have to have a reasonable chance of getting the work.

The most important concept is the sales funnel. It looks like this:

Essentially, consulting is somewhat of a numbers game. You won’t get every project for which you bid; every person you meet won’t become a client. To have a certain flow of actual, paid work, you need to have an even larger volume under development — moving through the funnel.

The funnel idea recognises that sales is a process. Prospects go in the top, and sales come out. If you want the sales to come out, then you have to make sure something is going in the top. Also, it isn’t an instantaneous event. Each sale takes time. To keep a steady flow, you have to keep feeding the funnel.

This idea also helps with the practicalities of sales:

  • You can classify your activities — you’ve just had a friendly conversation with some guy over a beer about a great research idea. Can he fund it? Can his organisation fund it? Who is authorised to spend the money? Is this central to their business? Is it something they are likely to undertake? These questions all help you decide whether that conversation was at the top, middle, or bottom of the funnel — how serious is it?
  • You can see where you might have holes — So you’ve been flat-tack for the last three months. Have you talked to anybody new? Have you submitted any proposals? Are you developing any ideas further or discussion potential projects? If not, there is a potential for the flow of work to dry up. Time to fill the funnel.
  • You can find your weaknesses — Given that it’s a bit of a numbers game, it’s also about your conversion rates (or, if you like, transition probabilities). For every ten people you discuss research ideas with, how many lead to project proposals? Of those proposals, how many lead to actual work? Let’s say, for example, that you convert most conversations to proposals, but have a hard time turning proposals into work. That gives you something specific to work on — are the proposals themselves weak, or are they not getting to the right people, or is it something else?

None of this is new, by the way. There are lots of sales books and systems out there. I advocate the KISS principle in all this — Keep It Simple, Stupid. The idea is to make sales, not administer a sales system. That’s why I like the funnel — a simple concept with all the power I need.

Trust me, I’m a consultant

06/07/2012 § 2 Comments

The issue of trust recently came up in a discussion with a research partner. In the ‘make or buy’ deliberation, one of the things to weigh up is trust. You can do the work yourself — make it — or you can buy in a consultant. If the work is sensitive or c0nfidential*, then bringing in a third party seems riskier. They are not under your direct control, and the contracted relationship is finite rather than open-ended.

This view, though, misunderstands the business of consulting. Consultants trade on reputation. Their capital base is the goodwill and trust they have built up through prior assignments. Being untrustworthy eats into their capital, which has long-term implications for their ability to earn a living.

In addition, consultants need to prove themselves reliable over and over again. Each new proposal, each new assignment, is another occasion when consultants have to demonstrate their knowledge, capability, and trustworthiness.

Contrast this with an employee. Employees only need to get through a single hiring decision (and then survive the 90-day trial period). After that, they just have to be mediocre. They just have to demonstrate that they aren’t bad enough for the employer to bother with a firing process. Even if they do end up leaving under less than ideal circumstances, the probability that the information will reach potential new employers is fairly low.

Is every consultant trustworthy? Of course not. But then, neither is every employee. It’s just that a consultant playing the long game and not ideologically driven actually needs to be more scrupulous than an employee. If nothing else, mercenaries are predictable.

Also, there are two aspects to trustworthiness:

  • whether the consultant is discreet and respects c0nfidentiality
  • whether the consultant can be trusted to do the work correctly.

A lot of focus goes on the first aspect, but the second aspect is actually harder to verify. If clients knew how to do the work, they wouldn’t be hiring consultants. So, they have to accept on faith — they have to trust — the quality of the work.

Which makes consultants a bit like car mechanics. You may not really understand what they are doing, but over time the good ones develop trust and a loyal clientele.

*Please excuse the odd spelling — it gets me through some firewall.

The dreaded ‘networking’

14/06/2012 Comments Off on The dreaded ‘networking’

One of the most misunderstood consulting skills is networking. It doesn’t help that the term is ugly and misguided, so it automatically gets people off on the wrong foot. The two problems are these:

  • it separates ‘networking’ time from other time and ‘networking’ activities from other activities. That encourages people to act differently and then the whole effort becomes artificial and strange
  • it contains the word ‘working’, so people think you have to work at it and make it difficult. Then the whole effort becomes tedious and contrived.

We can all recognise bad networking. This article gives a selection of the worst types: card-thrusters, cling-ons, mercenaries. Its sage advice is:

be genuine, be authentic and information sharing, be yourself.

That is, be the opposite of different, strange, contrived, and artificial.

The best networking is imperceptible. It appears like a natural progression, an organic process. That’s because in large part it is. Just to continue the metaphor — in vegetable gardening, you let the plants do most of the work. They get their own nutrients from the soil, they convert the sunlight. Even in the artificial environment of a garden, it is recognisably a natural, organic process. The gardener’s job is to give the plants the right conditions — fertile soil, enough water, the right amount of sun, shelter from wind — so that they grow well.

Let me beat you to the punch: gardening, like networking, does not require large amounts of manure. Raw, smelly manure is the worst thing for your garden and it will mess up your networking, too. It’s too obvious, it has all the wrong properties, and no one wants it around.

The focus of networking is making connections. Connections aren’t just finding out someone’s name and handing them your card. You need to find out about the other person — what do they do, where are they from, what are they thinking about? Then, you need to leave them with a little bit of yourself — why you do what you do, what your favourite project has been, how you spend your Sundays.

Consulting depends on personal relationships. Other people have to feel comfortable that you understand their problem and can help them. That’s why ‘networking’ isn’t one of the 7 skills of successful consulting. The real things you need are People Skills and Social Skills. You create connections by fostering personal relationships in socially appropriate ways.

The term ‘networking’ lets us down. It’s mechanical, electrical. But you can’t machine a relationship; you have to grow it. That takes time and effort, and it doesn’t require a business card.

Consulting on asset sales

22/05/2012 § 2 Comments

The Green Party released a report yesterday on the planned part-privatisation of state-owned assets. The report was written by BERL.

Let’s not be naive about this. The Green Party didn’t go looking for someone to tell them that the government should sell everything and stick to assigning and protecting property rights. If they had, there are economists who would have obliged. The obvious question, given that the report supports the party position, is how good the economics are.

This is an example of a central issue with consulting: providing clients with what they need or want while maintaining professional credibility. It’s an issue we’ve discussed here and one that Eric Crampton has also considered.

This BERL report is a great example of a consulting report. How did they do it? Here are some techniques:

  • Limit the question: The report calculates the impact on government finances from three scenarios. It doesn’t ask what the economic or GDP impact of public ownership is. That’s a harder question; it would also get into more complex assessment of efficiency of ownership structures and political analysis of allocative issues. BERL avoids those questions by focusing on government finances. This technique has the same function as ‘defining your terms’ and ‘setting the terms of reference’.
  • Show your work: The BERL calculations are shown in detail so you can check the maths. This keeps everything transparent and shows that the consultants have nothing to hide. Making a public display of the calculations hides things in plain sight, like Poe’s ‘The Purloined Letter’. When the consultants are challenged, they can say they have been completely honest. The key is that the calculations make no difference to the findings.
  • Assume your answer: Inputs drive the outputs in a model. So, choosing the right inputs or the right assumptions is key. BERL does this very clearly. They assume that any new asset has the same dividend as any asset that is sold, but takes a while to start yielding a return. This has the effect of assuming a loss, which they then calculate. They also, in the text, indicate that this is a key assumption and changing it could change the results of the analysis (see, ‘Show your work’).

This report does something valuable for the asset sales debate. It asks, ‘What are the stated reasons, and what calculations could we make to assess the reasoning?’ It then lays out a simple financial model. In doing this, the report suggests that the stated reasons don’t really hold up to analysis, which is useful by itself. The report also challenges supporters of the asset sales to say which input values are wrong and reveal their own assumptions. That changes the debate from ‘good versus bad’ to ‘what rate of return do you expect?’ That’s progress.

UPDATE: Now that coffee #3 is working through my system, I have finally noticed that Eric at Offsetting Behaviour has weighed in on this report, questioning the validity of the assumptions. Also, TVHE started with a bleg and ended with an informative comment thread.

Using your time profitably

20/03/2012 Comments Off on Using your time profitably

Consultants sell their time. Okay, they sell their expertise, but their main factor of of production is time. A successful consultant works on maximising the value from their time. Here’s how I think of it.

There are essentially four types of activities for a consultant:

  1. paid work
  2. sales, marketing, and networking
  3. investment in new skills
  4. administrivia.

The paid work is what brings in the money. It pays for all your time and all your overheads, and funds that lavish lifestyle all consultants lead (oops, almost spilled my morning martini). Obviously, therefore, more is better.

But wait — how do you get the paid work? Well, that’s where the sales, marketing, and networking come in. You need to have work and potential work lined up, so that you can finish your current project and move on to the next and then the next. If you don’t spend some time on generating work, pretty soon the work will dry up. On the other hand, if you spend too much time networking, you won’t get any billable work done.

Let’s say you have a target income of $150,000. Maybe you know from experience that your average project size is $10,000. You therefore need 15 projects per year to make your target income. Maybe you are successful with one out of every five proposals you write, or 20%. That means you need to write 75 proposals to get 15 projects.

Now we can put some hours into the calculations. If it takes 10 hours to write a proposal, that’s 750 hours. Working 37.5 hours per week for 46 weeks (remember — 4 weeks holidays plus 11 statutory holidays), you have 1725 work hours in a year. After writing proposals, you have 975 hours to do the work. At a billing rate of, say, $150 per hour, that $146,000. It’s not quite your target but pretty close.

We can think of this as an optimisation problem. One line is the sales, or total project revenue obtained. The other line is billings, or revenue earned. The intersection gives the equilibrium earnings.

There are a two things to note. First, this consultant is spending 43% of work hours on sales! While that’s a bit excessive, it is probably right for newer consultants or for established consultants breaking into new markets. The rule of thumb for small businesses in general is to spend 25% of time on sales on marketing.

Secondly, this diagram tells us what we can change if we want to raise our income. We can try to rotate the blue ‘supply’ curve anti-clockwise. Alternatively, we can shift the red ‘demand’ curve rightward. How do we do that? It’s all about changing the components of those curves:

  • become more efficient at writing proposals
  • make each project a little larger
  • increase your success rate
  • raise your charge-out rate
  • increase your work hours.

In this example, changing the success rate from 20% to 25% reduces the number of proposals you need to submit, freeing up time for billable work. Over 60% of your time can be billed, raising income to over $160,000.

I’ve talked about just the first two uses of your time. The other two will have to wait for another day. However, the basic principal is this: equalise the marginal return on time spent on each task. Think about whether that hour you spend blogging is generating as much value as an hour spent writing a proposal.

Oh, wait….

When consultant reports go bad

07/03/2012 Comments Off on When consultant reports go bad

A UK consultancy, AF Consult, produced a report that’s causing a stir.

The government and renewable energy businesses have slammed the findings of a controversial report that claimed 2020 carbon reduction targets could be achieved more cost effectively by building nuclear and gas-fired power stations instead of wind farms.

It turns out that KPMG was also involved at an earlier stage, but ducked out. At the time, KPMG kinda sorta released bits of it, but not all, and wouldn’t say how it was done.

KPMG is refusing to publish the full findings of a controversial study examining the cost of the government’s green energy policies, which was originally used as a basis for a series of media reports attacking the cost of renewable energy.

Green energy groups and the UK government are attacking the report. KPMG is refusing to stand behind their old co-researchers. It starts sounding like this AF Counsult might be industry shills.

But dig a little deeper and it isn’t so clear. A spokesperson tries to explain why KPMG is credible, but says maybe too much:

She also maintained that KPMG had close ties with the green energy industry, was not “anti-wind” and had last week been involved in a major wind farm deal.

So, is it that KPMG wants to be independent, or is it that they have business with renewable energy firms and don’t want to mess that up? And the people criticising these reports? Renewable energy firms, with a stake in the argument. Government officials with a stake in the policy. Nobody’s disinterested here.

The AF Consult report asks interesting questions (I haven’t looked at the method, so I can’t vouch for the conclusions). The questions are: what is the cheapest way to meet the UK carbon targets for energy production? and then, what will it cost to meet those targets with renewable sources? The idea is that meeting carbon targets and using renewable sources are actually separable. You can put a price on each one. And that is good information for both policy-makers and the public.

Several people claimed the method is flawed. If that’s true, then someone should do the analysis correctly. But the questions are still valid.

Writing well

02/03/2012 § 2 Comments

Consultants write. Good consultants write well. Unfortunately, writing well takes some effort. You have to learn how to do, refresh your skills, and make sure that you apply those skills.

Like other consulting skills, good writing can be learned. A liberal arts degree is best for this, but the undervaluing and demise of the BA will have to wait for another post. Instead, most people will have rely on short courses and books about writing. As it happens, a colleague lent me an excellent book: Clear, Concise, Compelling by Simon Hertnor.

He offers a quote from somewhere that encapsulates writing for consultants:

Your time is important, so I’ll be brief.

There are two reasons people hire consultants:

  • they have a problem they don’t know how to solve
  • they need cover for something they already want to do.

Quality of writing isn’t central to the second type of assignment. For the first type, clear writing is critical. The client needs a clear description of the problem and plain advice on what to do. If they wanted to get involved in the intricacies and nuances, they would have done the work themselves. Sometimes, of course, the problem is complex. That doesn’t mean your writing has to be.

Hertnor’s book is really good at the basics. And the basics are what people get wrong all the time.

To keep this from being an advertisement for a single book, let me say that there are many books about writing. Elements of Style is a classic and many people swear by it. I’ve found it a bit dated and hard to use, but that’s only one opinion. My workplace has just bought a couple of writing manuals from Penguin books. They are apparently good, but they are more like reference manuals than how-to books. Eats, Shoots and Leaves is more readable, but focused on punctuation. Ask around — you’re sure to know one pedant with strong opinions on writing and a shelf of books to recommend.

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