Management Consultants are not born smart and almighty. They dress to look that way but most of their “magic powers” come from 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 on 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.
- 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 on 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 the rough estimation of the market size. Below a short movie showing how it works in practice:
- 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 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 in set of actions to achieve the desired results. For such an exercise you can use the 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 certain level of revenues from ads etc. Below 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 on 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 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 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 a simple frameworks. This is old and simple but at the same time very efficient method.
- 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 mechanism and coming up with ways to somehow measuring them using Key Performance Indicators (KPI). If you know the business driver behind specific mechanism and you can measure them you can try to claim that you actually understand it and maybe even you can manage it 😉
- 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 in 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 the claim to know the benchmarks for the specific industry.
- 80/20 rule. 80/20 rule called also Pareto principal is very old and still works for most of the cases. It states that 80% of the results comes from 20% of the efforts. It is quite often rewritten in a bit different forms: 80% of profits comes from 20% of customers, 80% of problems is caused by 20% of machines etc. In short it says that you should focus only on selected group of the most important customers / problems / actions as they will have the biggest impact on result. Again focus is the most important thing.
- Opportunity tree and KPIs. Opportunity tree is a bit similar to 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 a short movie showing how it works in practice:
- Rankings. Quite often you have options that you want to somehow compare and rank them. 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 ranking are perfect if you want to pick a product for further development or a country where you should expand and conquer new territories. Below a short moview with some additional infor on rankings:
- Scenario Analysis. 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 to 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 action is better. You can use is for example to plan how much product you should produce (depending on 3 scenario about the weather), whether to enter specific market or not
- 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 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. 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 a short movie showing how it works in practice:
- Theory of constraints and bottlenecks. As a management consultants 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 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 a short movie showing how it works in practice:
- Critical chain. This is the application of 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 like hell, they will start working on their task at the very end (Parkinson Laws) and most likely they will fail their deadlines. The critical chain suggests that there is a way out of this loop. Below 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. These philosophy treats everything that doesn’t create value from the customer point of view as a 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 detailed overview of lean manufacturing techniques that I recommend using.
- Simulations. 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 an 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 😉
- Feasibility Analysis. In Feasibility Analyses you want to check whether something is possible or not or what are the limitations that 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 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, and customers etc. to achieve). This sort of analysis is a must if you have to choose 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 to small changes in underlying assumptions. The solution can be pretty stable…. or very volatile. Quite often it’s better to have less than optimal solution but a stable one than a solution that looks optimal but can easily become your biggest nightmare. This sort of analyses you will be doing all the time: when picking the best place for you 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, 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.), why your results improved (lower costs, higher sales, higher price etc.).
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).
Below the post in the form of presentation:
I hope you enjoyed the short overview. Stay tuned for more….. 😉