Global consulting is a big industry right now, and my company is getting increasingly involved. Consulting in a global environment is a natural fit. Many countries are developing and use the U.S. as a blueprint for success and capitalism at its best.
My firm does a lot of work in India. We follow the trend. India has become big business. My firm even outsources internal functions for employees to Deloitte India employees. If we have a problem with the firm intranet and call the hotline, we will get a fellow Deloitte employee... from India. My company is also in the usual European countries and China.
My particular field is healthcare. Global healthcare has many facets that we are looking at. First, medical tourism has become a huge business. Deloitte does a lot of analysis on this practice, which will be impacted by health care reform. People are on different sides of the fence on how health reform will affect medical tourism. So, we need people on the ground to monitor daily. By reducing the restrictions created by health plans, some believe that those who would have gone overseas for care will now get this care in the U.S. However, others believe that the access constraints will force more people overseas. To take it a step further, it is possible that a number of providers will set up overseas practices instead of facing higher patient demand with lower reimbursement pay.
Another global area we are looking at is access to care and the re-emergence of global diseases. In areas of Africa, for example, patients might be hundreds of miles from the nearest clinic. Medical technology companies can help bring mobile health care to the patients. This is a big industry, but the return on investment for third world countries is low. As far as the re-emergence of formerly eradicated diseases, we use this as a research forum. For example, polio has re-emerged in some countries. The U.S. is in a position to get to the root of the problem and help patients dealing with these issues. However, the biggest reason behind our involvement is how it might impact us. Consulting firms like mine have doctors and scientists on staff who can try and proactively recognize how re-emerging diseases in other countries could eventually lead to the same issue here. Data analytics can try and predict which diseases are most likely to re-emerge here.
Sunday, May 29, 2011
Saturday, May 7, 2011
Rivalry
Deloitte is the largest management consulting firm in the world. We dabble in all areas of consulting and compete by having quality services that organizations can use from strategy through implementation. Within our industry we have a few strong competitors. The competition, however, is largely based on the sector.
The federal sector competition is Booz Allen Hamilton. They have, hands down, the largest footprint in federal consulting. In order to compete, Deloitte bought the assets of Bearing Point, a firm that went bankrupt but still had a good reputation in the federal sector. In the past few years, many other firms have developed federal consulting practices, or at least improved upon their existing practice. Despite this, the competition between Deloitte and Booz Allen Hamilton is the equivalent of the Yankees and Red Sox.
Booz pays its employees well and carries on a formal, sometimes old-school way of doing business. They focus on IT, professionalism, and a lot of staff augmentation. However, they also undercut competitors to win contracts. Later in the year, you start to see their consultants drop off of projects. This is because to win the contract and pay good salaries, they have to find a solution to contract overburn. They get a good start, then pull assets back once the hit the half way mark, knowing that they can't keep the project staffed at initial levels.
Deloitte exploits this by charging more, but giving the client peace of mind that we will be there for the long haul. We also distinguish ourselves by being more well-rounded. It is difficult for either company to set up barriers to entry for the other. Neither has any contractual preference in the federal sector. Mostly they battle in the recruiting wars. I recieved offers from both companies and without even mentioning the other's name, the recruiters and interviews all pointed out how they are superior. In reality, the two companies should be more concerned with newer rivals than each other. Booz Allen Hamilton has become a public company in the past several months and has become somewhat schizophrenic with their future goals. Deloitte has not properly integrated its Bearing Point acquisition. This leaves the door open for other rivals.
In the commercial space, the rivals are different. Deloitte has a much stronger commercial practice, since it has been their bread and butter for a long, long time. Here, the main competitors are Accenture and PWC. Both of these companies are large and offer a wide range of services. Deloitte distinguishes itself from Accenture by being more robust in all areas, where as Accenture is known primarily for IT. It also uses Accenture's publicly traded status as a negative, taking the angle that a large, private firm cares more about its people and clients (rather than shareholders). Deloitte distinguishes itself from PWC through branding. PWC is solid, but they don't take the efforts to make themselves known (in the consulting field) like Deloitte.
All of the firms mentioned are already in most industries, or are attempting to do so. Deloitte and the major competitors listed are unlikely to ever tell a client that work proposed is outside of their scope. We know who we can and who we can't compete with. For example, Deloitte must be able to offer full cycle services to differentiate itself from a McKinsey, BCG, or Bain. There is a large gap between the top three and the rest of the top ten. McKinsey, BCG, and Bain compete amongst themselves in the world of the elite. Their employees and business acumen is better. However, they do not water down their brand by offering every service imaginable.
As a result, Deloitte and its few great competitors can sit atop a perch and see others coming. There has been a lot of M&A activity in consulting during the past few years. The large firms are always on the lookout to either buy, or destroy upstarts or firms looking to expand.
The federal sector competition is Booz Allen Hamilton. They have, hands down, the largest footprint in federal consulting. In order to compete, Deloitte bought the assets of Bearing Point, a firm that went bankrupt but still had a good reputation in the federal sector. In the past few years, many other firms have developed federal consulting practices, or at least improved upon their existing practice. Despite this, the competition between Deloitte and Booz Allen Hamilton is the equivalent of the Yankees and Red Sox.
Booz pays its employees well and carries on a formal, sometimes old-school way of doing business. They focus on IT, professionalism, and a lot of staff augmentation. However, they also undercut competitors to win contracts. Later in the year, you start to see their consultants drop off of projects. This is because to win the contract and pay good salaries, they have to find a solution to contract overburn. They get a good start, then pull assets back once the hit the half way mark, knowing that they can't keep the project staffed at initial levels.
Deloitte exploits this by charging more, but giving the client peace of mind that we will be there for the long haul. We also distinguish ourselves by being more well-rounded. It is difficult for either company to set up barriers to entry for the other. Neither has any contractual preference in the federal sector. Mostly they battle in the recruiting wars. I recieved offers from both companies and without even mentioning the other's name, the recruiters and interviews all pointed out how they are superior. In reality, the two companies should be more concerned with newer rivals than each other. Booz Allen Hamilton has become a public company in the past several months and has become somewhat schizophrenic with their future goals. Deloitte has not properly integrated its Bearing Point acquisition. This leaves the door open for other rivals.
In the commercial space, the rivals are different. Deloitte has a much stronger commercial practice, since it has been their bread and butter for a long, long time. Here, the main competitors are Accenture and PWC. Both of these companies are large and offer a wide range of services. Deloitte distinguishes itself from Accenture by being more robust in all areas, where as Accenture is known primarily for IT. It also uses Accenture's publicly traded status as a negative, taking the angle that a large, private firm cares more about its people and clients (rather than shareholders). Deloitte distinguishes itself from PWC through branding. PWC is solid, but they don't take the efforts to make themselves known (in the consulting field) like Deloitte.
All of the firms mentioned are already in most industries, or are attempting to do so. Deloitte and the major competitors listed are unlikely to ever tell a client that work proposed is outside of their scope. We know who we can and who we can't compete with. For example, Deloitte must be able to offer full cycle services to differentiate itself from a McKinsey, BCG, or Bain. There is a large gap between the top three and the rest of the top ten. McKinsey, BCG, and Bain compete amongst themselves in the world of the elite. Their employees and business acumen is better. However, they do not water down their brand by offering every service imaginable.
As a result, Deloitte and its few great competitors can sit atop a perch and see others coming. There has been a lot of M&A activity in consulting during the past few years. The large firms are always on the lookout to either buy, or destroy upstarts or firms looking to expand.
Saturday, April 23, 2011
Cost
Consulting is a cut-throat business where cost analysis is very important. The service industry has to be very cognizant of competitors prices, and how they're affected by inputs. This can be more difficult than costs in other industries. For example, within the computer market, there are often a few original equipment manufacturers that produce components. When the price of a component changes, it is felt throughout the industry. As far as the computer itself, it is easy to find out how much the company is charging.
In consulting, our rates are not public. When we compete for contracts, there is no way of knowing how much the competition is proposing. As a result, consulting firms can go about pricing in various way. First, however, we need to know where competitors costs come from. The major input cost for our service is human capital. At Deloitte, we are recognized as a top-tier consulting firm. In order to obtain and retain the best talent, cutting salaries and benefits isn't an option. My firm is very concerned with margins, and attempts to avoid reducing them at all costs. We use our variety of consulting services and quality staff to justify high prices.
However, there are times when the employee costs cannot be justified. In the federal sector, there was a large amount of hiring with the anticipation of more business. This didn't materialize the way my firm has planned it. Lay-offs aren't part of our business model, per se. Now, profits for the federal practice have slowed. While the federal practice wasn't fully prepared with a strategy to react to this problem, the commercial side has some lessons on this subject.
For all of our consultants, training costs are very high... and they get higher based on the consultant level. Federal consultants who were hired without a project realized that their prospects were limited the longer they went without a client. This, combined with other administrative processes within my firm, resulted in turnover. The approximate replacement cost for each lost employee is approximately half of that person's salary. One way to combat this issue is through hiring less permanent staff and more project associates.
Project associates are only hired for individual projects, require less training, and typically have lower salaries. By using these employees to reduce costs is a good strategy. The problem occurs when there is an improper balance between skilled consultants (who have undergone more industry training) and new project associates (lower experience=lower cost). Competitors can exploit this by challenging our expertise. Without this vital factor, we cannot justify high prices.
In consulting, our rates are not public. When we compete for contracts, there is no way of knowing how much the competition is proposing. As a result, consulting firms can go about pricing in various way. First, however, we need to know where competitors costs come from. The major input cost for our service is human capital. At Deloitte, we are recognized as a top-tier consulting firm. In order to obtain and retain the best talent, cutting salaries and benefits isn't an option. My firm is very concerned with margins, and attempts to avoid reducing them at all costs. We use our variety of consulting services and quality staff to justify high prices.
However, there are times when the employee costs cannot be justified. In the federal sector, there was a large amount of hiring with the anticipation of more business. This didn't materialize the way my firm has planned it. Lay-offs aren't part of our business model, per se. Now, profits for the federal practice have slowed. While the federal practice wasn't fully prepared with a strategy to react to this problem, the commercial side has some lessons on this subject.
For all of our consultants, training costs are very high... and they get higher based on the consultant level. Federal consultants who were hired without a project realized that their prospects were limited the longer they went without a client. This, combined with other administrative processes within my firm, resulted in turnover. The approximate replacement cost for each lost employee is approximately half of that person's salary. One way to combat this issue is through hiring less permanent staff and more project associates.
Project associates are only hired for individual projects, require less training, and typically have lower salaries. By using these employees to reduce costs is a good strategy. The problem occurs when there is an improper balance between skilled consultants (who have undergone more industry training) and new project associates (lower experience=lower cost). Competitors can exploit this by challenging our expertise. Without this vital factor, we cannot justify high prices.
Saturday, April 16, 2011
"Innovating" in consulting
My firm has its own community of practice dedicated to innovation. Since I work in a consulting firm, the term innovation can be misleading. We aren't producing anything tangible. Instead, we come up with innovative ideas. The tricky thing is that we don't actually implement any of the innovative ideas ourselves... and they really aren't innovative in the first place. I'll explain. Our innovation lab is geared at coming up with ideas that we can sell in order to win contracts and increase total billable hours.
However, we aren't really leaders, considering that the innovation we come up with is already being done. We just learn about it, become experts on whatever the trend may be, and then re-package it for potential customers. A lot of our focus lately has been on social media. Facebook and Google would have no need for our services. As a matter of fact, we learn a lot of lessons from them. Our strategy is to break down the innovation efforts that work, determine how they can be best implemented, and sell these services.
Looking at the list of once strong companies that have gone out of business, one can see where a consulting firm would come into play. These companies either don't know how to go about doing business any other way, or just refuse to do so. A firm like mine will use lessons learned from industry leaders in order to spur innovation for failing companies.
However, we aren't really leaders, considering that the innovation we come up with is already being done. We just learn about it, become experts on whatever the trend may be, and then re-package it for potential customers. A lot of our focus lately has been on social media. Facebook and Google would have no need for our services. As a matter of fact, we learn a lot of lessons from them. Our strategy is to break down the innovation efforts that work, determine how they can be best implemented, and sell these services.
Looking at the list of once strong companies that have gone out of business, one can see where a consulting firm would come into play. These companies either don't know how to go about doing business any other way, or just refuse to do so. A firm like mine will use lessons learned from industry leaders in order to spur innovation for failing companies.
Saturday, April 9, 2011
Production in Consulting
While it may not appear that management consultants produce anything, we view research as our output. Recommendations aimed at improving companies' performance come from data and information gleaned from many resources. Our production typically starts with white papers, which originate from the need for research on a particular topic. Depending on their demand, the information in the white papers may be used for proposal work to gain clients, or be posted on our vast research site.
Each project's deliverables include a painstaking amount of lessons learned and templates to be used for future work. This results in both the proprietary content only for internal use and practice methods to be used for a variety of clients. When there are great industry shifts, my firm will ramp up production, decrease production, or completely change our focus (to new industries or trends). Our production of information and research is analogous to any other company's development of a tangible product. If that product warrants any kind of demand, chances are my firm is involved in its industry. When we recognize gaps in information, we will hire more people to conduct research on the topic. It just so happens that what we produce is available online or on paper.
Each project's deliverables include a painstaking amount of lessons learned and templates to be used for future work. This results in both the proprietary content only for internal use and practice methods to be used for a variety of clients. When there are great industry shifts, my firm will ramp up production, decrease production, or completely change our focus (to new industries or trends). Our production of information and research is analogous to any other company's development of a tangible product. If that product warrants any kind of demand, chances are my firm is involved in its industry. When we recognize gaps in information, we will hire more people to conduct research on the topic. It just so happens that what we produce is available online or on paper.
Sunday, March 27, 2011
Public Policy on Health Care
Over 50 million Americans are uninsured and health care has risen to approximately 17% of GDP. What should we make of this? Consumers are not positive on the state of health care in this country. They see issues with access to care, emergency rooms flooded by patients using them for primary care, and employers dropping coverage. However, when asked about government intervention, many Americans are wary. The reason for this is that there has not been a good option to solve these issues.
Health reform transformed from the idea of universal health care to a confusing array of mandates on providers, health plans, and life sciences companies. There are penalties and tax breaks. However, the average American still cannot comprehend what these changes mean for them. At first glance, some of the changes appear positive. Some of the issues that have plagued the health care consumer in the past have been coverage limits, lack of insurance options from employers, and the strong arm of big pharma dictating drugs and formularies. Now, small business will have incentives to provide insurance. More scrutiny will be placed on pharmaceutical companies. Limits on insurance coverage will be phased out.
The government views the health care issue as one that only they can fix. People are not happy. However, many will not be happier through government intervention. I agree that health care in America is fraught with issues. However, if I was given the option, I'd rather have my care performed in America than anywhere else on earth. I was able to see firsthand while in England what universal health care looks like. It is not better. Sure, there aren't the same concerns with reimbursements, but the level of care is not optimal. Have you ever seen the teeth of a Brit? Their care options are not complete.
I do not view health care as a right. It is a good or service, depending on what you're having done, that the government should not affect. The current state of health care is a function of America being a rich country. Greater emphasis is being placed on preventative care and health living. Do we need government intervention for this? How much of health care is actually life or death, and how much is pure consumerism?
The government is not financially prepared to truly overhaul the system. A model similar to TriCare within the Department of Defense would be great. However, it is not feasible to do this on a grand scale. I'll take our "broke" health care system over any other health care system, and day of the week. When the government tip toes around the issue, but is unable to actually fix the problem, most people lose. Actually, the hard-working American suffers.
I see the government as creating the very problem that they are now attempting to fix. Look at the big taglines in health reform. There is a lot of talk about the Medicare reimbursable rate. Rates, that I may add, will be cut. This will result in physicians seeing greater demand for their services, with less reimbursement. A new, potentially talented breed of providers may see this as a reason to enter another field. The demand for health care, with so many people lacking insurance, will naturally rise by providing options to these individuals. How will the supply issue be covered, though? Where will the providers come from?
While I do see a problem with so many uninsured Americans, you do have to look at why they are uninsured. Should the government give them handouts? I do not want to sound cruel, but either the government fixes the problem or they stay out of the issue completely. Let the consumer benefit from competition and enjoy the innovation and options that they have, even if the system is "broken".
Health reform transformed from the idea of universal health care to a confusing array of mandates on providers, health plans, and life sciences companies. There are penalties and tax breaks. However, the average American still cannot comprehend what these changes mean for them. At first glance, some of the changes appear positive. Some of the issues that have plagued the health care consumer in the past have been coverage limits, lack of insurance options from employers, and the strong arm of big pharma dictating drugs and formularies. Now, small business will have incentives to provide insurance. More scrutiny will be placed on pharmaceutical companies. Limits on insurance coverage will be phased out.
The government views the health care issue as one that only they can fix. People are not happy. However, many will not be happier through government intervention. I agree that health care in America is fraught with issues. However, if I was given the option, I'd rather have my care performed in America than anywhere else on earth. I was able to see firsthand while in England what universal health care looks like. It is not better. Sure, there aren't the same concerns with reimbursements, but the level of care is not optimal. Have you ever seen the teeth of a Brit? Their care options are not complete.
I do not view health care as a right. It is a good or service, depending on what you're having done, that the government should not affect. The current state of health care is a function of America being a rich country. Greater emphasis is being placed on preventative care and health living. Do we need government intervention for this? How much of health care is actually life or death, and how much is pure consumerism?
The government is not financially prepared to truly overhaul the system. A model similar to TriCare within the Department of Defense would be great. However, it is not feasible to do this on a grand scale. I'll take our "broke" health care system over any other health care system, and day of the week. When the government tip toes around the issue, but is unable to actually fix the problem, most people lose. Actually, the hard-working American suffers.
I see the government as creating the very problem that they are now attempting to fix. Look at the big taglines in health reform. There is a lot of talk about the Medicare reimbursable rate. Rates, that I may add, will be cut. This will result in physicians seeing greater demand for their services, with less reimbursement. A new, potentially talented breed of providers may see this as a reason to enter another field. The demand for health care, with so many people lacking insurance, will naturally rise by providing options to these individuals. How will the supply issue be covered, though? Where will the providers come from?
While I do see a problem with so many uninsured Americans, you do have to look at why they are uninsured. Should the government give them handouts? I do not want to sound cruel, but either the government fixes the problem or they stay out of the issue completely. Let the consumer benefit from competition and enjoy the innovation and options that they have, even if the system is "broken".
Thursday, March 17, 2011
Demand
In the past couple of years, consulting firms involved in the federal health care markets were sitting on a gold mine. There were several factors that contributed to this. Health reform became a huge issue (and still is). HHS and the CDC realized that they weren't adequately equipped with the personnel or skills to effectively react. DoD had a war on two fronts with an increased focus on the invisible wounds of war (psychological health). They, along with the VA and several other organizations, pushed this issue. As a result, many other patients were weeded out from past wars, creating access to care concerns.
Unable to keep up with the rising demand for health care services, and more specifically, knowledge about industry changes; consulting firms were able to effectively win government contracts. The demand, due to the reasons that I outlined, along with the propensity for the government to spend far more than they should for a given product or service, was fairly inelastic. Furthermore, government contracting regulations dictate that there is a hierarchy of organizations that must be considered before granting a contract to a large firm. This is easier to accomplish when the firms produce ideas and strategy instead of products. However, the smaller firms that previously served the federal health arena were simply incapable of meeting the requirements. Large, expensive firms were able to gain a greater foothold in this market.
Additionally, due to the structure of the contracts, consulting firms were able to lengthen their projected completion times and continue to be granted option years. Indefinite delivery - indefinite quantity contracts placed the risk in the government's hands. This still continues, to a certain degree, as none of the issues related to the increased demand have really changed. However, the government remembered its initiative to cut costs (and force the DoD to produce a clean balance sheet).
Now, agencies such as the DoD have decided that the costs have gotten out of hand. They have floated around the idea of cutting 10%. Contracts, as a general rule in government comptrollership, are the first to be cut. As a result, consulting firms are looking for the next big thing. At the moment, it appears to be emerging markets.
At the outset, demand is high and the first firms on the scene are price makers. Eventually, other firms will catch on and join in, increasing competition and decreasing prices. In this manner, consulting firms are similar to technology products. The trendy areas of consulting tend to go in this direction, while more "boring" areas (like retail) are easier to predict. Large firms balance the two areas, straddling both traditional and innovating, new markets.
Unable to keep up with the rising demand for health care services, and more specifically, knowledge about industry changes; consulting firms were able to effectively win government contracts. The demand, due to the reasons that I outlined, along with the propensity for the government to spend far more than they should for a given product or service, was fairly inelastic. Furthermore, government contracting regulations dictate that there is a hierarchy of organizations that must be considered before granting a contract to a large firm. This is easier to accomplish when the firms produce ideas and strategy instead of products. However, the smaller firms that previously served the federal health arena were simply incapable of meeting the requirements. Large, expensive firms were able to gain a greater foothold in this market.
Additionally, due to the structure of the contracts, consulting firms were able to lengthen their projected completion times and continue to be granted option years. Indefinite delivery - indefinite quantity contracts placed the risk in the government's hands. This still continues, to a certain degree, as none of the issues related to the increased demand have really changed. However, the government remembered its initiative to cut costs (and force the DoD to produce a clean balance sheet).
Now, agencies such as the DoD have decided that the costs have gotten out of hand. They have floated around the idea of cutting 10%. Contracts, as a general rule in government comptrollership, are the first to be cut. As a result, consulting firms are looking for the next big thing. At the moment, it appears to be emerging markets.
At the outset, demand is high and the first firms on the scene are price makers. Eventually, other firms will catch on and join in, increasing competition and decreasing prices. In this manner, consulting firms are similar to technology products. The trendy areas of consulting tend to go in this direction, while more "boring" areas (like retail) are easier to predict. Large firms balance the two areas, straddling both traditional and innovating, new markets.
Saturday, March 12, 2011
Incentives
The topic of incentives has recently come up in my Project Management (PMP) certification program. Some of the items we looked at were the Expectancy Theory, Maslow's Heirarchy of Needs, and Herzberg's hygiene factors. While some of these do not directly address incentives, at least in terms of monetary benefit, they do address motivation. Motivation, in my opinion, is the backbone of incentives.
The Expectancy Theory states that employees who believe their efforts will lead to effective performance or rewards will remain productive when rewards meet expectations. This is a learned behavior that we have come to expect since childhood. If we do well, it will be recognized and rewarded. If we do well and it is not rewarded, the problem lies with whomever is in the position of power to grant the reward. When reward fails to be an option, and good work is not appropriately recognized, morale falls. I tend to believe that this theory represents how employees function, as a whole.
Maslow's Heirarchy of Needs describes the most basic to the most advanced levels of need that one can exhibit. The first three are physiological, safety, and love/belonging. However, for the purposes of incentives, I will focus on the top two: self-esteem and self-actualization. Self-esteem is a major motive for incentives, as employees seek to be recognized for their work. While any monetary or time-off incentive certainly sweetens the deal, it is the pride and recognition that push these people to continue performing at high levels. This need is most closely associated with the Expectancy Theory in terms of motivation for performing at high levels. Self-actualization, on the other hand, is much harder to come by.
I have told myself in certain situations that my motivation for doing a good job was due to transcending to this level. For example, while working in the busiest trauma center in all of Afghanistan and Iraq combined, I convinced myself that the sole purpose was to help people. I can admit now that while I definitely believed in the mission, I had not transcended to this level. I did not receive a day off for over seven months and saw, on a daily basis, death and maiming. After some time, I came to expect recognition. I knew that, at this time, while serving in the military I would not receive any form of monetary reward. However, the performance award and evaluation ranking became an obsession of mine. I wanted to be recognized. I had not passed the self-esteem level.
This brings me to Herzberg's hygiene factors. He states that hygiene factors, such as improved salary, working conditions, etc. can destroy motivation, but not improve it. He also states that motivation stems from professional growth and recognition. I only believe this to be true of people who are at least at the self-esteem level of Maslow's Heirarchy.
Now, to tie this in with my current organization, I believe that hygiene factors are vital. The client site I work at is a hostile environment. The consultants, for the most part, are higher paid than the clients. However, we are often treated as second-class citizens. The work itself is overshadowed. In this case, improved hygiene factors, such as working conditions, would certainly improve motivation and performance. To complicate matters, leadership fails to step in on behalf of the consultants. The impression is that the leaders who do not have to work on client site are protected from the hostilities, yet still reap larger rewards.
This disconnect will eventually have a very negative impact on leaders who fail to provide adequate incentives for their employees. So far, it appears that the cream rise and leave the project. The less capable employees, who are more concerned with lower need levels (such as receiving a paycheck and not losing their homes), remain and perform poorly. Eventually, this is recognized, as the performance issues permeate and reach the leadership. At this point, the bonuses that the leaders received as a result of managing a large contract will be in jeopardy.
One cannot expect all employees to be motivated in the same way. As a result, incentives will (and should) differ for individual needs. Leaders who fail to recognize this will eventually succumb, as their own incentives are closely linked with the people actually performing the work (as T. Roosevelt said, "...the man who really counts in the world is the doer, not the mere critic-the man who actually does the work, even if roughly and imperfectly, not the man who only talks or writes about how it ought to be done.").
The Expectancy Theory states that employees who believe their efforts will lead to effective performance or rewards will remain productive when rewards meet expectations. This is a learned behavior that we have come to expect since childhood. If we do well, it will be recognized and rewarded. If we do well and it is not rewarded, the problem lies with whomever is in the position of power to grant the reward. When reward fails to be an option, and good work is not appropriately recognized, morale falls. I tend to believe that this theory represents how employees function, as a whole.
Maslow's Heirarchy of Needs describes the most basic to the most advanced levels of need that one can exhibit. The first three are physiological, safety, and love/belonging. However, for the purposes of incentives, I will focus on the top two: self-esteem and self-actualization. Self-esteem is a major motive for incentives, as employees seek to be recognized for their work. While any monetary or time-off incentive certainly sweetens the deal, it is the pride and recognition that push these people to continue performing at high levels. This need is most closely associated with the Expectancy Theory in terms of motivation for performing at high levels. Self-actualization, on the other hand, is much harder to come by.
I have told myself in certain situations that my motivation for doing a good job was due to transcending to this level. For example, while working in the busiest trauma center in all of Afghanistan and Iraq combined, I convinced myself that the sole purpose was to help people. I can admit now that while I definitely believed in the mission, I had not transcended to this level. I did not receive a day off for over seven months and saw, on a daily basis, death and maiming. After some time, I came to expect recognition. I knew that, at this time, while serving in the military I would not receive any form of monetary reward. However, the performance award and evaluation ranking became an obsession of mine. I wanted to be recognized. I had not passed the self-esteem level.
This brings me to Herzberg's hygiene factors. He states that hygiene factors, such as improved salary, working conditions, etc. can destroy motivation, but not improve it. He also states that motivation stems from professional growth and recognition. I only believe this to be true of people who are at least at the self-esteem level of Maslow's Heirarchy.
Now, to tie this in with my current organization, I believe that hygiene factors are vital. The client site I work at is a hostile environment. The consultants, for the most part, are higher paid than the clients. However, we are often treated as second-class citizens. The work itself is overshadowed. In this case, improved hygiene factors, such as working conditions, would certainly improve motivation and performance. To complicate matters, leadership fails to step in on behalf of the consultants. The impression is that the leaders who do not have to work on client site are protected from the hostilities, yet still reap larger rewards.
This disconnect will eventually have a very negative impact on leaders who fail to provide adequate incentives for their employees. So far, it appears that the cream rise and leave the project. The less capable employees, who are more concerned with lower need levels (such as receiving a paycheck and not losing their homes), remain and perform poorly. Eventually, this is recognized, as the performance issues permeate and reach the leadership. At this point, the bonuses that the leaders received as a result of managing a large contract will be in jeopardy.
One cannot expect all employees to be motivated in the same way. As a result, incentives will (and should) differ for individual needs. Leaders who fail to recognize this will eventually succumb, as their own incentives are closely linked with the people actually performing the work (as T. Roosevelt said, "...the man who really counts in the world is the doer, not the mere critic-the man who actually does the work, even if roughly and imperfectly, not the man who only talks or writes about how it ought to be done.").
Friday, March 4, 2011
Data Mining
While I am not a calculus guru, I do work for a consulting firm that is more than happy to hire math nerds and capitalize on the needs of businesses. There is a saying in consulting that “if you’re not part of the solution, there is good money to be made in prolonging the problem.” That is only partially true. In fact, consulting firms recognize opportunities and make themselves indispensable. Where does math factor into this? The answer is through data mining.
Data mining can sift through endless piles of data and identify trends. This predictive function is vital to many organizations. Furthermore, a good data mining system can discover these trends through automation. As a result, the company needs only to have personnel on board who can analyze the results. The math geniuses who designed the program are viewed as the conquering heroes. Of course, if the company does not employ anybody who can analyze the data, my firm would be happy charge the company for these additional services.
Companies that are not strong in terms of technology can easily fall into not knowing what they do not know. This is a weakness that perpetuates itself until poor results make themselves blatantly obvious. If leadership believes that maintaining an Excel spreadsheet is going to provide a reliable system, then they are mistaken. Instead, management must look at how they approach data mining. First, objectives must be clearly defined. The process of developing data mining infrastructure goes hand-in-hand with strategy. As a strategy consultant, this interaction is vital. Great strategy means little if there is not a system to evaluate the data it produces. On the other hand, great modeling programs mean little if the input or output is unknown or undecipherable. Once the company defines how it plans on using the data, the correct information can be categorized.
Should a client present itself with a data mining need, there are steps my firm would take to provide results. The strategy consultants would determine how the client is positioned in the marketplace and work with leadership to discover the way forward. This involves marketing statistics and data that is either available but cannot be trended, or has yet to be discovered. Preparing the data is often the most time consuming aspect of this process.
Next, we would determine what model to use. This depends not only on what industry the client serves, what its goals are, and its current capabilities; but also how much they are willing to pay for a sophisticated product. Once this is recognized, the technology team will utilize math and logic to develop a vehicle that will enable the data to be gleaned into relevant information. Market analysts can assist this process by making sure that the scope of the data mining meets the needs of the company (i.e. data quality).
Finally, if needed, consultants would interpret the data. This would enable the company to clearly see where they are weakest and identify trends. For example, data mining is great tool to use for SWOT analyses. The game is not over at this point, though. If predictive trends aren’t realized, then the system is not successful and has little value to management. Analysis must be done to scrutinize how the organization can either utilize the data to cut costs or take advantage of new opportunities. Also, there is the question of who officially owns and maintains the system.
A final consideration is that data mining is dynamic. Once the desired goals are realized, there is a necessity to continue adapting. While data mining statistical trends are largely historical, they still require a consistent flow of new information.
Sunday, February 20, 2011
Porter's Five Forces
In the management consulting field, the environment is competitive, yet is large enough for various players to enter and compete. However, the ability to do this effectively depends on many factors. Large firms often take the approach of offering specialty services on a large scale. For example, McKinsey is recognized as a best in field strategy firm. Accenture, however, places heavy emphasis on technology. My firm, Deloitte, serves as a generalist who can deliver strategy through implementation services on a high level. On the other hand, boutique firms may utilize pricing power or a more personal approach to generate profits.
While the consulting marketplace is well-established, it is far from recognizing market saturation. Fragmentation still exists, as the demand of consulting needs far outpaces the ability of even the largest firms to dominate. However, the basis for rivalry is similar across the board. The cost of services is fairly range bound, with firms holding great eminence in their field holding a marked advantage in terms of retaining and building clientele. Rivals looking to increase market share are often forced to take on competitors at their own game, rather than differentiating themselves with unique knowledge. Deloitte, for example, attempts to recognize changes in the marketplace first; gaining a foothold before other large competitors can do so. Laggards are forced to distinguish themselves by offering a lower price point, better talent, or a better strategy geared towards the individual customer. Deloitte was able to create differentiation by being a one-stop shop for all consulting needs. In areas where they did not have good market penetration, they acquired firms in order to better compete. Finally, firms such as Deloitte have achieved economies of scale as evidenced by high margins and low overhead; reducing unit cost. Innovative structures, such as office “hoteling” has led this effort.
Novel ideas, such as those described above, are important in an industry where there are few barriers to entry, but several barriers to success. The biggest barriers tend to be the ability to compete with top-tier firms (such as McKinsey, Bain, and Boston Consulting Group). These firms, while charging higher prices, set up barriers through knowledge and client relationships that new entrants are unlikely able to duplicate. While costs need not be high to enter the consulting field, industry knowledge is the biggest commodity. Even the most seasoned consultants, creating their own firm, will lack the resources and proprietary information that large firms have built up over many years with a diverse clientele. As a result, new entrants are forced to grow by taking on smaller customers. Conversely, firms such as Deloitte are often able to increase revenues not through how they can impact a specific client, but rather their breadth of past clients. Reputation, in this field, is of the utmost importance.
One of the biggest downsides to being able to continually compete is the loss of talent. The very reputation of the firm that builds clientele trickles down to the consultants. These consultants often gain a reputation closely linked with their firm. As a result, companies will hire consultants. This is a substitute that saves them costs, as they can garner similar expertise without the price mark-up. This forces consulting firms to continually hire and develop new talent to offset this trend. A challenge to retaining talent is the long hours and travel often required of consultants. It is difficult to retain these individuals for the life of their career. Deloitte has continually attempted to balance the work-life ratio in order to keep employees from moving on. At Deloitte, it is rare that a practitioner will move to a different firm. It is far more likely that they leave to take a position with a former client. Deloitte, and its competitors, must compete not only within themselves for hiring new talent (such as MBAs), but with various companies, as well.
Due to these attempts to obtain their own talent to improve company strategy, buyer bargaining power remains relatively high. A large aspect to the extent whether consulting firms can continue to produce profits is based on a couple of factors. First, the size of the client is vital. Accenture, for example, was able to fend off the negative effects of the recession (at least compared to many other publicly traded companies) by serving large corporations. While these corporations had suffering earnings, it was at this time that they needed consultants the most. Boutique firms dedicated to smaller companies often did not have this luxury. The second aspect to staving off buyer bargaining power is the entrance to new industries. During the downturn, the federal government continued to spend large amounts of money on consulting. Deloitte’s buyout of Bearing Point during this time proved that growth was possible, even in poor economic environments. This external factor, the requirement for government to be more efficient and produce clean balance sheets, was a boon to my firm.
While buyer bargaining power is complicated, supplier bargaining power in this industry is easier to understand. The major suppliers are the consultants. Firms with good reputations have robust recruiting practices, enabling them to obtain the best talent. Supply for new talent is rarely short for these firms. However, as discussed earlier, retaining this talent can be an uphill battle. Firms such as Deloitte place a large emphasis on training. Deloitte University is set to open in 2011 and act as the hub for all consultancy training. In addition, continuing education hours are required, as are networking events and firm development. The goal is to not only create a better consultant, but to gain buy-in in order to retain top individuals.
Established consulting firms have a unique place in the market. During economic downturns, they tend to fare better than other corporations, as their expertise is needed more than ever (a low-overhead structure employed by firms such as Deloitte is helpful, as well). As economies recover, corporations are willing to spend more on these services in order to gain an edge. The goal of consulting firms is to always stay at least one step ahead of industry. Despite the ebbs and flows, there are always means by which an established firm can continue to improve its place within the market.
While the consulting marketplace is well-established, it is far from recognizing market saturation. Fragmentation still exists, as the demand of consulting needs far outpaces the ability of even the largest firms to dominate. However, the basis for rivalry is similar across the board. The cost of services is fairly range bound, with firms holding great eminence in their field holding a marked advantage in terms of retaining and building clientele. Rivals looking to increase market share are often forced to take on competitors at their own game, rather than differentiating themselves with unique knowledge. Deloitte, for example, attempts to recognize changes in the marketplace first; gaining a foothold before other large competitors can do so. Laggards are forced to distinguish themselves by offering a lower price point, better talent, or a better strategy geared towards the individual customer. Deloitte was able to create differentiation by being a one-stop shop for all consulting needs. In areas where they did not have good market penetration, they acquired firms in order to better compete. Finally, firms such as Deloitte have achieved economies of scale as evidenced by high margins and low overhead; reducing unit cost. Innovative structures, such as office “hoteling” has led this effort.
Novel ideas, such as those described above, are important in an industry where there are few barriers to entry, but several barriers to success. The biggest barriers tend to be the ability to compete with top-tier firms (such as McKinsey, Bain, and Boston Consulting Group). These firms, while charging higher prices, set up barriers through knowledge and client relationships that new entrants are unlikely able to duplicate. While costs need not be high to enter the consulting field, industry knowledge is the biggest commodity. Even the most seasoned consultants, creating their own firm, will lack the resources and proprietary information that large firms have built up over many years with a diverse clientele. As a result, new entrants are forced to grow by taking on smaller customers. Conversely, firms such as Deloitte are often able to increase revenues not through how they can impact a specific client, but rather their breadth of past clients. Reputation, in this field, is of the utmost importance.
One of the biggest downsides to being able to continually compete is the loss of talent. The very reputation of the firm that builds clientele trickles down to the consultants. These consultants often gain a reputation closely linked with their firm. As a result, companies will hire consultants. This is a substitute that saves them costs, as they can garner similar expertise without the price mark-up. This forces consulting firms to continually hire and develop new talent to offset this trend. A challenge to retaining talent is the long hours and travel often required of consultants. It is difficult to retain these individuals for the life of their career. Deloitte has continually attempted to balance the work-life ratio in order to keep employees from moving on. At Deloitte, it is rare that a practitioner will move to a different firm. It is far more likely that they leave to take a position with a former client. Deloitte, and its competitors, must compete not only within themselves for hiring new talent (such as MBAs), but with various companies, as well.
Due to these attempts to obtain their own talent to improve company strategy, buyer bargaining power remains relatively high. A large aspect to the extent whether consulting firms can continue to produce profits is based on a couple of factors. First, the size of the client is vital. Accenture, for example, was able to fend off the negative effects of the recession (at least compared to many other publicly traded companies) by serving large corporations. While these corporations had suffering earnings, it was at this time that they needed consultants the most. Boutique firms dedicated to smaller companies often did not have this luxury. The second aspect to staving off buyer bargaining power is the entrance to new industries. During the downturn, the federal government continued to spend large amounts of money on consulting. Deloitte’s buyout of Bearing Point during this time proved that growth was possible, even in poor economic environments. This external factor, the requirement for government to be more efficient and produce clean balance sheets, was a boon to my firm.
While buyer bargaining power is complicated, supplier bargaining power in this industry is easier to understand. The major suppliers are the consultants. Firms with good reputations have robust recruiting practices, enabling them to obtain the best talent. Supply for new talent is rarely short for these firms. However, as discussed earlier, retaining this talent can be an uphill battle. Firms such as Deloitte place a large emphasis on training. Deloitte University is set to open in 2011 and act as the hub for all consultancy training. In addition, continuing education hours are required, as are networking events and firm development. The goal is to not only create a better consultant, but to gain buy-in in order to retain top individuals.
Established consulting firms have a unique place in the market. During economic downturns, they tend to fare better than other corporations, as their expertise is needed more than ever (a low-overhead structure employed by firms such as Deloitte is helpful, as well). As economies recover, corporations are willing to spend more on these services in order to gain an edge. The goal of consulting firms is to always stay at least one step ahead of industry. Despite the ebbs and flows, there are always means by which an established firm can continue to improve its place within the market.
Strategic Positioning
My organization is a large management consulting firm. Currently, I work within Federal Government Health care Services, where growth has been high. My firm entered this market and gained a foothold primarily through the acquisition of another large management consulting firm. This company’s bankruptcy enabled my firm to buy its greatest asset – a large federal practice. We have since leveraged the existing relationships to become one of the most distinguished firms in this sector.
While the acquisition was key to entering the federal market, my firm has since relied on organic growth; utilizing its name and reputation gained in the commercial markets to the federal government. This is evidenced by double-digit growth, year over year. The current state of the federal government has yielded many opportunities to obtain business. Furthermore, the typical contract mechanism utilized by the government, specifically the Department of Defense, is beneficial in ensuring business relationships for several years (through contract options).
One of biggest boons to the business has been health care. This is seen both via health care reform due to shifting demographics and increased costs; as well as the increasing need for improvements to care for Service Members and Veterans. My firm positions itself by hiring an array of individuals; from administrators to clinicians to security-cleared personnel to IT specialists, etc. This enables us to migrate within the entire federal health care marketplace seamlessly.
The firm also has a unique strategy that differentiates it from competitors. Within the federal arena, many consulting firms offer staff augmentation at a discounted rate. Given certain contracting requirements, there are few firms that can offer high-end services. Many smaller firms are not designed to run a full-service strategic platform, where as my firm runs the gamut from strategy through implementation. As a result, there is limited competition to be awarded as the prime on big contracts (there are only a handful of large firms offering similar services). However, we are able to fulfill contracting requirement by subcontracting work to smaller firms. Due to my firm’s eminence, we have the ability to charge higher fees. The client understands that while the price point may be higher, we are a one-stop shop with vast resources.
Our market penetration makes us more attractive than competitors. As opposed to top boutique firms, who have a niche area in which they are very competent, my firm attempts to be well-rounded in all areas. Even if unfamiliar with our services, clients know the name. The other side of our business is as the largest of the Big Four audit firms. While the audit and consulting sides are kept separate, the name goes far. While this may only appear important for the commercial business, this is actually far from the truth. Often, government personnel are not familiar with large consulting firms. However, almost everyone knows my firm (many know someone who work for my firm). All things considered equal, this give us an advantage when the contract award takes place.
In addition, my firm is well aware of trends going on domestically and internationally. With international business becoming increasingly important, our footprint has grown in various countries. When issues such as health care or banking become prominent, we are first to get in the game. While this is made capable due to our breadth and depth in the industry, it is also how we remain a leader.
Despite these positives, in order to maintain this positioning, my firm needs to better integrate its federal and commercial practices; standardizing internal processes. As a fairly new entrant into this market, there are growing pains. The internal strategy has not been adequately designed. As long as this remains an issue, competing firms can enter and gain market share by developing a federal program slowly, building it over time.
While the acquisition was key to entering the federal market, my firm has since relied on organic growth; utilizing its name and reputation gained in the commercial markets to the federal government. This is evidenced by double-digit growth, year over year. The current state of the federal government has yielded many opportunities to obtain business. Furthermore, the typical contract mechanism utilized by the government, specifically the Department of Defense, is beneficial in ensuring business relationships for several years (through contract options).
One of biggest boons to the business has been health care. This is seen both via health care reform due to shifting demographics and increased costs; as well as the increasing need for improvements to care for Service Members and Veterans. My firm positions itself by hiring an array of individuals; from administrators to clinicians to security-cleared personnel to IT specialists, etc. This enables us to migrate within the entire federal health care marketplace seamlessly.
The firm also has a unique strategy that differentiates it from competitors. Within the federal arena, many consulting firms offer staff augmentation at a discounted rate. Given certain contracting requirements, there are few firms that can offer high-end services. Many smaller firms are not designed to run a full-service strategic platform, where as my firm runs the gamut from strategy through implementation. As a result, there is limited competition to be awarded as the prime on big contracts (there are only a handful of large firms offering similar services). However, we are able to fulfill contracting requirement by subcontracting work to smaller firms. Due to my firm’s eminence, we have the ability to charge higher fees. The client understands that while the price point may be higher, we are a one-stop shop with vast resources.
Our market penetration makes us more attractive than competitors. As opposed to top boutique firms, who have a niche area in which they are very competent, my firm attempts to be well-rounded in all areas. Even if unfamiliar with our services, clients know the name. The other side of our business is as the largest of the Big Four audit firms. While the audit and consulting sides are kept separate, the name goes far. While this may only appear important for the commercial business, this is actually far from the truth. Often, government personnel are not familiar with large consulting firms. However, almost everyone knows my firm (many know someone who work for my firm). All things considered equal, this give us an advantage when the contract award takes place.
In addition, my firm is well aware of trends going on domestically and internationally. With international business becoming increasingly important, our footprint has grown in various countries. When issues such as health care or banking become prominent, we are first to get in the game. While this is made capable due to our breadth and depth in the industry, it is also how we remain a leader.
Despite these positives, in order to maintain this positioning, my firm needs to better integrate its federal and commercial practices; standardizing internal processes. As a fairly new entrant into this market, there are growing pains. The internal strategy has not been adequately designed. As long as this remains an issue, competing firms can enter and gain market share by developing a federal program slowly, building it over time.
Operational Effectiveness
Within my firm, there are a couple of answers to this question. As I mentioned in the Strategic Positioning discussion, I work for a large management consulting firm; specifically within the federal government sector. The Operational Effectiveness within my sector is lagging its commercial counterpart.
As a whole, my firm has many functions that add to its Operational Effectiveness. Included among these are a wide depth/breadth of knowledge and industries served, vast technological assets, a robust recruiting and talent retention program, and individualized career paths. However, the federal sector practice has not integrated well with a strategic plan that was built for the commercial sector.
While there is an abundance of information to be found on the firm’s intranet, it is often not useful to the federal sector. Furthermore, employee performance is often measured by utilization rate. While this might be adequate for consultants who can bill clients for all hours worked, this is often not the case with government contracts. The contract might limit each practitioner to 40 billable hours per week. As a result, any unbillable time affects an individual’s utilization rate. Ironically, one can be considered underutilized merely by attending mandatory firm training and functions.
Additionally, service lines might fall between two sectors. For example, while I work in the federal government sector, my service line is health care. Health care, however, is a general service line that functions for both sectors. No clear distinction has been made, as it is obvious that there was failure to integrate these areas when the buyout of a large federal consulting practice was completed a couple of years ago; leading to the firm’s large federal footprint.
Prior to the acquisition, my firm merely dabbled in the federal markets. However, it did not build an infrastructure specific to this sector, as it was not large enough at the time. The acquisition not only grew the practice, but caused an influx of over 90% of the other entity's personnel. At present time, there is a struggle between the two cultures. Those brought over from the acquired firm still compare company policies to the way that they used to do business. The new hires to the firm have embraced the culture of the acquiring entity.
As a whole, my firm has many functions that add to its Operational Effectiveness. Included among these are a wide depth/breadth of knowledge and industries served, vast technological assets, a robust recruiting and talent retention program, and individualized career paths. However, the federal sector practice has not integrated well with a strategic plan that was built for the commercial sector.
While there is an abundance of information to be found on the firm’s intranet, it is often not useful to the federal sector. Furthermore, employee performance is often measured by utilization rate. While this might be adequate for consultants who can bill clients for all hours worked, this is often not the case with government contracts. The contract might limit each practitioner to 40 billable hours per week. As a result, any unbillable time affects an individual’s utilization rate. Ironically, one can be considered underutilized merely by attending mandatory firm training and functions.
Additionally, service lines might fall between two sectors. For example, while I work in the federal government sector, my service line is health care. Health care, however, is a general service line that functions for both sectors. No clear distinction has been made, as it is obvious that there was failure to integrate these areas when the buyout of a large federal consulting practice was completed a couple of years ago; leading to the firm’s large federal footprint.
While the opportunities within the federal sector increase, resulting in what appears to be great revenue growth, problems still exist. Some of these issues have resulted in talent trying to cross over to the commercial side, or leaving the firm. These struggles illustrate how Operational Effectiveness can be very different, even within one firm.
Prior to the acquisition, my firm merely dabbled in the federal markets. However, it did not build an infrastructure specific to this sector, as it was not large enough at the time. The acquisition not only grew the practice, but caused an influx of over 90% of the other entity's personnel. At present time, there is a struggle between the two cultures. Those brought over from the acquired firm still compare company policies to the way that they used to do business. The new hires to the firm have embraced the culture of the acquiring entity.
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