Management Consultants are not born smart and almighty. They dress to look that way but most of their “magic powers” come from the application of simple techniques, frameworks, and tools. Do you want to master those “magic” tricks and be as smart as them? If the answer is YES, then let’s spend the next 20 minutes reminding ourselves what techniques a badass consultant has to master to at least pretend to be smart 😉 Some of them are basics, others are not that trivial. I hope you will enjoy my selection and if there are some things that might have slipped my old mind just let me know and I will add the technique/framework. I will discuss here briefly different concepts. If you want to master every technique I would recommend checking my course Management Consulting Techniques, Tools and Frameworks. So let’s start.
- Bottom-up approach. No matter what you do (waiting in a line in the shop, optimizing your pick-up strategy in a pub, or estimating the market for senior care in Denmark) you will most likely use this method to get a rough estimation of a specific phenomenon. The technique is very simple: you find a typical user, estimate his consumption of a specific good and then by estimating how many users you have you can get to a rough estimation of the market size. Below is a short movie showing how it works in practice:
Check how using the bottom-up approach you can estimate the value of segments and customers.
- Top-down approach. Sometimes you have the size of a specific market but you don’t have the size of a specific part/segment of this market. For this, you can use the top-down approach in which you start from the total market and you try to estimate how big the part of it is. Below is a short movie showing how it works in practice:
- Backward logic/reasoning. In many cases, you have the end results and you want to see how much effort/money you have to put into a set of actions to achieve the desired results. For such an exercise you can use backward logic. It’s perfect for estimating i.e. how much you have to save to buy something in 5 years’ time, how many new stores you have to open to get to the set level of EBITDA, how many visitors to your site you have to have to achieve a certain level of revenues from ads etc. Below is a short movie showing how it works in practice:
- Issue tree. This technique is heavily used by consultants especially when you have no prior knowledge of the industry or the area. You list the area, you guess problems, and define analyses that will help you prove right or wrong your guesses. Below is a short movie showing how it works in practice: Have a look also at the example of such an issue tree created for logistics and an issue tree for retail
- Low-hanging fruits. Management consultants are always looking for things that are easy to achieve and bring a big impact – this is what we call low-hanging fruits. Those things have the highest priorities when it comes to implementation. One of the ways to impress a bunch of senior managers is to show them such simple frameworks. This is an old and simple but at the same time very efficient method.
Check also how you identify quick wins in Purchasing & Procurement
- KPIs and business drivers. Every complicated mechanism can be broken down to 3-5 simple drivers. If you measure those drivers, in some ways you can control the mechanism. That’s why management consultants quite often spend some time at the very beginning on defining proper business drivers for specific mechanisms and coming up with ways to somehow measure them using Key Performance Indicators (KPI). If you know the business driver behind specific mechanisms and you can measure them you can try to claim that you actually understand it and maybe even you can manage it ;). Check the movie showing what a good KPI is as well as my post on KPIs.
- Benchmarks. If it cannot be measured it cannot be managed – that’s the golden rule of management. That’s why you look for KPIs and try to define them for every business. However, even the cleverest KPIs are useless if you can’t define the proper level for those KPIs. Should you serve the customer in 1 minute or maybe 10? How big should be your product? What price can we charge for it? To answer this sort of question you need a point of reference, that will tell you how good or bad you are at something. That’s why management consultants have benchmarks, preferably based on the best practices in a specific industry. One of the reasons why consultants get the job is that they claim to know the benchmarks for the specific industry.
- 80/20 rule. 80/20 rule called also the Pareto Principle is very old and still works for most cases. It states that 80% of the results come from 20% of the efforts. It is quite often rewritten in a bit different forms: 80% of profits come from 20% of customers, 80% of problems are caused by 20% of machines, etc. In short, it says that you should focus only on a selected group of the most important customers/problems/actions as they will have the biggest impact on the result. Again focus is the most important thing.
- Opportunity tree and KPIs. The opportunity tree is a bit similar to the issue tree. The difference here is that you start with defining your business model using KPIs and you look for opportunities to move those KPIs in the right directions. Below is a short movie showing how it works in practice:
- Rankings. Quite often you have options that you want to somehow compare and rank. Thanks to the ranking you not only will give points to each and every option but you can also sort them from the most wanted to the least desired. That’s why rankings are perfect if you want to pick a product for further development or a country where you should expand and conquer new territories. Below is a short movie with some additional information on rankings:
- Scenario Analysis. The future is pretty difficult to figure out. You don’t know what will happen. In those cases, it is a good idea to consider a few different scenarios. The scenario analysis is great if there is a lot of unpredictability in the business you are analyzing and you want to show the customer that he may have problems (or huge benefits). Usually, you define 3 scenarios: pessimistic, realistic and optimistic, and use them to estimate which set of actions is better. You can use it for example to plan how much product you should produce (depending on 3 scenarios about the weather), and whether to enter a specific market or not. Below you can find a movie with an interesting example of scenario analysis:
- Representative element analysis. In many cases, there are a lot of options that you can consider. For simplicity, you want to limit the options and get down to 1-5 representative elements. It gives you better results than working on averages. If you want for example to design a new factor instead of thinking about the average element that you will be producing you define up to 5 typical elements and you try to design the layout of the new factory on the basis of those 5 typical elements. In marketing, you put a sexy name to it and you call it buying persona or customer profile.
- Decision Tree Analysis. The decision tree is one of the most useful tools that you can use during consulting projects to choose the optimal solution. It is especially useful if you have to take into account probability and chance. Below is a short movie showing how it works in practice:
- Theory of constraints and bottlenecks. As a management consultant, you will be often asked to optimize the whole system. In such cases, you can’t spread your attention over everything but you rather concentrate on the improvement of a selected area. For the best impact, you should concentrate on the so-called bottlenecks – stages that are the slowest / least efficient that define the throughput of the whole system. If you improve them you will improve the whole system. Below is a short movie showing how it works in practice:
- Critical chain. This is the application of the theory of constraints to projects. In short, it says that people will always fight for long comfortable deadlines. Once they will get the long deadlines accepted since they are lazy as hell, they will start working on their task at the very end (Parkinson’s Laws) and most likely they will fail their deadlines. The critical chain suggests that there is a way out of this loop. Below are more details on this beautiful simple method:
- Lean Manufacturing. Another useful set of actions from production (apart from the theory of constraints) is Lean Manufacturing. This philosophy treats everything that doesn’t create value from the customer’s point of view as waste and tries to eliminate or reduce this waste. The waste can be i.e. too much walking around, too much inventory, too much processing, etc. Have a look at a detailed overview of lean manufacturing techniques that I recommend using.
- Cost-Benefit Analysis. During most consulting projects you will be conducting a countless number of cost-benefit analyses. In this sort of analysis, you have to estimate the benefits of your proposed solution and compare them with the implied costs, as well as Capex, and Working capital requirements. Usually, you will use the NPV to decide whether something makes sense or not. Let’s look at a short example of such an analysis.
Now let’s see how it can be used in an analysis done for Purchasing:
Check also the example for Lean Office where we try to estimate the benefit of changing the layout and we try to see whether the planned investments will be a good idea.
- Simulations. The future is pretty difficult to figure out. You can use scenario analysis or you check ALL the potential options and see which is optimal. This sort of exercise used to be very difficult but now with even Excel, you can do very sophisticated simulations. Once you get the results from the situation for potential options you can simply pick the best one. Imagine that you could do the same when choosing your husband or wife 😉 Let’s have a look at how we can apply simulations in finding the optimal production batch:
- Feasibility Analysis. In Feasibility Analyses, you want to check whether something is possible or not or what limitations you have to consider. In feasibility analyses, you are given the goal you have to achieve. Now you need either to find the limitation or alternative ways to reach that goal. This is a very powerful method that you use not only for checking where to put your factory or office but also whether some strategic decision makes sense (do we have enough people, place, customers, etc. to achieve). This sort of analysis is a must if you have to choose a long-term solution with many parameters to be considered.
- Sensitivity analysis. Once you come up with an optimal solution you want to see how sensitive it is too small changes in underlying assumptions. The solution can be pretty stable…. or very volatile. Quite often it’s better to have a less than optimal solution but a stable one than a solution that looks optimal but can easily become your biggest nightmare. This sort of analysis you will be doing all the time: when picking the best place for your factory, when deciding whether to enter a market or not, which investment strategy is the best etc. In other words, always check how stable/sensitive your solution is.
- Decomposition Analysis. Decomposition analysis shows you what the components and driving forces behind certain phenomena are. Thanks to this sort of analysis you can say what are the reasons behind a very complicated thing. Decomposition analysis enables you to analyze why your sales went up (weather, price, better selling process, etc.), and why your results improved (lower costs, higher sales, higher price, etc.).
- Top-down communication. Management Consultants have a specific way of talking and presenting the whole story. They actually start with results and not what they have done to achieve them. Let’s have a look at a short movie on that:
- First Principles. This method is a favorite tool used by Elon Musk. It boils down to looking at the main drivers and basic principles that are influencing the thing you want to change. In a sense, you disregard current solutions and try to build a new solution from scratch. Below is a short movie showing how to use it in practice:
- Cost Reduction Framework. During many projects, you will have to cut costs. There are some standard ways to achieve that. Below you can find a movie showing the framework that we use:
- Sales & Margin Increase Framework. In a similar way, we can try to define standard ways that you can use to boost sales or the margin. Let’s see what you can do when it comes to consumer goods.
For every industry, such a framework will look a bit different.
- Scaling Sales Framework. In certain situations, you will rather concentrate on scaling just sales. There are 5 ways to achieve that. You can scale distribution, products, customers, markets, and brands. Let’s see what exactly Amazon has done to scale its sales:
For more tips on scaling check my post on Scaling Businesses
- Scaling Operations. The second area that you will have to scale is the so-called Operations. In the case of a consumer goods firm, it will be concentrated on scaling factories and the supply chain. In the case of retailers, it will be more around opening new stores. Let’s look at the general framework for scaling operations:
- Scaling Recruitments & Training. In many industries, you have so many people that scaling people becomes an extremely important area that can prevent you from achieving your goals. Let’s first have a look at the general framework
You can also check the modification of the framework for scaling people in retail business
- Inventory reduction Framework. Firms are not only obsessed with inventory, but also with their cash position. Therefore, a lot of attention is devoted to the so-called liquidity management. One of the areas that help you achieve the goal of increasing the cash position, is the reduction of inventory. Let’s see how you can do that in practice:
- Funnel Analysis. A funnel is a tool that can be used to map and analyze a series of events that lead to a particular goal. In other words, you map the stages that you have to go through to achieve your goal. The goal may be Sales, Gross Margin, number of customers acquired, and number of projects done. Funnel analysis can help you manage the process of achieving the goal and find ways to improve the situation. Let’s look at a short movie that will give you an idea how what it looks like.
- Business Model Canvas. The Business Model Canvas is a way to present the business model of any company in a standardized way. In this framework, we present the business model by describing the company in 9 separate areas. In many situations, it’s used to summarize what a specific business looks like, and what are the driving engines. Below is a short movie in which we discuss the 9 elements
Now let’s look at how the Business Model Canvas can be used in practice. We will use it to describe McDonald’s business model.
Check also Uber’s Business Model, Facebook’s (Meta’s) Business Model, and Netflix’s Business Model
Modular Design/Modularity. Management Consultants are very good at building blocks that help them fast create the end products. They create modules that can be reused for many purposes. By rearranging them you can do totally new things. This principle is used widely in most languages where with a limited number of letters (usually 20-40) you can create an unlimited number of words. This principle is used in creating management consulting presentations. It can be also widely used to improve businesses (especially production, supply chain, product design, and purchasing). Let’s look at a few examples:
Capex vs Opex. This is a type of scenario analysis that we have discussed in which you analyze doing the same thing either with a lot of Opex or a lot of Capex. Let’s look at a short example that will show you how to approach such analyses:
- Make-or-buy analysis. In this sort of analysis you are trying to calculate whether to do something internally (a make option) or outsource it (buy). It can be used for small things (e.g. managing a project) or to decide to get rid of a whole department (outsourcing. Let’s look at a short example.
Bear in mind that to calculate it properly you have to estimate the total cost of ownership.
- Headcount Optimization. During many projects, you will try to adjust the level of employment to the workload. This is usually done to lower costs and improve efficiency. You can achieve it in 6 main ways. Let’s look at how you can do that in practice:
That’s in short. If you want to learn in practice how to use each and every method check my course Management Consulting Techniques, Tools and Frameworks where you will find examples showing you how to use those techniques in practice (as always a lot of examples in Excel).
I hope you enjoyed the short overview. Stay tuned for more….. 😉
You can have a look at the presentation that summarizes the post in a bit different form. Btw have a look at our post on Business Idea Generation. It will help you come up with new business ideas.
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