This is a common occurrence. Your company has come a long way and now the growth is stalled. You have hard working employees and they are all aligned to your mission. You set goals and develop KPIs, but every year you fall short of your targets. Something is blocking the progress. But what?
Lack of effort is not your problem. Most companies do not lack effort. They lack clarity on how to move the business forward. Your employees may be working hard but they are not working on the right problems. They may not even be aware of what problems to solve to create progress. You need a fresh perspective, someone who can detach from the daily minutiae and consider the larger vision and strategy. Someone to make sure that all the wheels of your bus are aligned and moving in the same direction, in sync. You as a driver don’t have this visibility. You need an external perspective.
What Is Strategy and Operations Consulting?
You need to connect direction with execution. Strategy sets the direction. It tells you where to play and how to win. Operations executes on your strategy and delivers the results. When you align strategy and operations you close the gap between plans and the results.
Consulting is a structured intervention to improve your strategy, your operations or both. A good consultant will bring fresh perspectives, a wealth of experience in the field, and the latest business thinking to help you fix and fine tune your strategy, and then help you execute.
Strategy vs. Operations: The Critical Distinction
Most organizations fail because they optimize one while neglecting the other.
When you focus on strategy, you consider questions like your market positioning, customer selection, product differentiation, competitive landscape, pricing strategy, etc. These are the big picture items and intimately connected to your visions and goals as an organization.
when you focus on operations, you consider the aspects of your business such as cost structure, processes and workflows, execution efficiency, supplier selection, marketing spend optimization, etc. These help you do things more efficiently.
But they have to be connected. Strategy without operations means you have good ideas but you do not do anything with them. Your ideas don’t scale and the business does not grow. Operations without strategy means you are very efficient in what you do, but what you do may not be the right thing to do. If you are not careful, you can move very efficiently in the wrong direction.
What Strategy and Operations Consultants Actually Do
Strategy and Operations consultants play a significant role in identifying growth bottlenecks and finding solutions to eliminate them.
It is not merely theoretical advice. The structured problem solving is tied with clear and quantifiable outcomes. Listed below are some of the areas that can benefit from the services of strategy and operations consultants.
Pricing and Cost Structure Optimization
Pricing strategy maximizes revenue while an optimal cost structure ensures that you generate more profit per dollar of revenue. Without a well thought out pricing strategy, you may be under-charging, in which case you are leaving dollars on the table. On the other hand, you may also be over-charging, in which case your sales may be lower than what is possible. Optimal pricing strategy takes the competitive landscape into account along with the customer demand and your brand positioning.
An optimized cost structure helps you generate high sales per dollar of spend. Typical work may focus on supply chain optimization, eliminating unnecessary overhead, material sourcing efficiencies, etc.
Product Portfolio Rationalization
Does every product in your portfolio carry its own weight? Do they all contribute nicely to your margins? Do they all advance your brand position so over time you carve out a moat for your business where you have high pricing power and the competitive barriers are high.
If not why? And how do you fix this?
Generally companies manage an evolving product portfolio. Some SKUs maybe on the decline (intentionally or due to changes in the customer preferences), some SKUs are going strong and generating most of the cash flow, while there may be new SKUs that have not yet had enough time in the market to establish themselves (and maybe consuming disproportionate marketing effort). You cannot treat them all the same way and without a coherent strategy to guide you, you will end up with a fragmented portfolio that pulls in many different and possibly competing directions.
Process and Operations Efficiency Improvements
With time even well designed processes become bloated and inefficient. This could be due to many factors. The process goals may get diluted, there may be teams or groups with overlapping mandates, middle management may compete instead of cooperate, etc. Leadership may not wish to directly address some of these so as to not create employee friction. It is extremely important to use objective sets of eyes to find the issues and a decisive hand to make the changes needed to fix these issues.
For manufacturing businesses, often production processes can be improved by more efficient layouts, better job definitions, improvement in inventory use and reordering, etc. The gains may seem marginal but these are recurring gains that compound over time.
Strategy Execution and Implementation
Rolling out a new initiative within the organization can be tricky and may require guidance from experts who do this regularly. Implementation is not always a key competency within an organization as this is not something that is needed at all times. This will require building consensus with all the stakeholders, synchronizing activities and measuring and tracking KPIs. Often new strategies may require designing new processes and making them permanent. This disrupts regular way of doing business.
Specialized Engagements Include
- Market entry and growth strategy – could be new geographical market or a new product category
- New product launches – estimating market size, competition, growth potential, etc.
- Make vs buy decisions – cost considerations, strategic questions around vertical integration, etc.
- Post-merger integration – synergies, organizational alignment, eliminating redundancies, etc.
Deliverables
All consulting work results in the following key deliverables.
- Clear decisions (not just analysis): This means there is a clear answer to the question that is being asked, and is well supported by the data and the business best practices.
- Implementation roadmap: We tell you what needs to be done, and we create a plan that you can follow to execute on the recommendations. if required, we can stay with your team and guide the implementation.
- Measurable impact (revenue, margin, cost): This is where the value of consulting becomes real. The return on your investment in consulting services is in the form of increased revenues or profits. These benefits may be accretive immediately or they may accumulate over time. In all cases, you will be able to measure and quantify the impact.
When Do You Actually Need It?
Not every business needs consulting. There are certain conditions when consulting expertise is an investment with a very high ROI. This is likely to be the case when you see the symptoms of a malaise in the business but you do not yet know the cause.
Clear Triggers Include
- Growth has stalled despite strong demand – perhaps you need new capabilities in the organization to scale, or you need to identify issues that are blocking growth
- Margins are compressing without clear explanation – there could be many reasons why this happens
- Too many products, unclear winners – you need to actively manage your product portfolio to maximize growth. Cut the laggards and invest in the winners.
- Execution feels chaotic or inconsistent – when the goals and vision are not clear withing the organization, management is pushed in many different directions
- Leadership bandwidth is stretched – fighting fires that are unnecessary, spending time on the projects that do not move the needle, managing customers that are unprofitable
There are a few inflection points where consulting help is critical. For example, when you are scaling your business, when you enter new markets, or when your company goes through a major transformation or restructuring. We have also worked with clients who want to respond to changes in economic conditions or to the currents of globalization.
When You Probably Don’t Need It
Consulting is not a panacea. While it can deliver significant benefits at certain stages of the business, it will destroy value if the conditions are not right. If you are an early stage company without a proven product-market fit, a consultant won’t be able to help. If your problems have obvious solutions, a consultant may not be able to add additional value over what you can get yourself, and finally if your company is unwilling to implement change, you should not seek out consulting advice. It has be intriguing to me to observes companies engaging us because they have available budget for consulting they want to spend, but not implementing any of the recommendations. This is wasted dollars, but it also shows that your priorities are not aligned with the best outcomes for your business.
How to Evaluate If It Will Deliver ROI
Leaders can be wary of hiring consultants because they are “expensive”. However, like any projects, you need to stop looking at the cost and start looking at the return on investment (ROI). If your ROI is higher than the WACC, the project is worth doing.
To calculate your ROI, start by looking at the size of impact when the problem is resolved. This could be in the form of increased revenue, improved margins or cost reductions. Some of these benefits can take time to accrue so it is also important to evaluate the speed of resolution. For example, something that immediately returns 10%/year in benefit can be valued differently than a 30% one time benefit that accrues 1 year after the project starts.
Once you have decided that a project is worth doing, then the question becomes whether you have the capability inside the organization to implement it. Many companies have built an external cross-functional strategy/operations consulting unit and the project will be a good fit if they have available capacity to implement it in a timely manner. If not, you will need to turn to external consultants who can come to the engagement and deliver the results you need in an efficient manner.
As a rule of thumb, if a consulting engagement can move the profit by 5-10% in positive direction, consulting is often justified.
What to Expect from a High-Quality Engagement
Outcomes depend heavily on how the work is structured. A high quality engagement will include data drive diagnosis, prioritization of issues and initiatives, linkages to the financial outcomes and support for implementation. You want the consultants to identify issues, choose the issues that are of the highest priority based on speed of execution and ROI impact, quantify the benefits and recommend initiatives and clearly define an implementation plan for each initiative. Great consultants will often lead client teams through the implementation as well to ensure that the objectives are achieved.
Common Misconceptions
Many companies do not believe that consultants add any value to their businesses. There is often a deep seated mistrust of outside consultants. This is especially true for smaller growing businesses who have bootstrapped their growth without much external support.
“Consultants just create slides”, “We already know the problems”, “Hiring consultants is too expensive”, etc. are all common refrains stop these companies from hiring them. Many new entrepreneurs also believe they can do things better and faster than the experts with a wealth of experience and business education.
Companies can grow only so far driven by the founders, no matter how passionate and capable they are. At a certain point, professional management and external consultants need to come in to drive the next stage of growth, or just to maintain their existing market position. When cost of inaction becomes larger than the cost of consulting, it is no longer rational to avoid hiring consultants.
The Compounding Effect of Getting It Right
Each consulting engagement results in small buy meaningful improvement in the business. You get better profit margins, leaner organization, focused strategy, efficient operations, etc. Each incremental improvement builds upon the other giving your business benefits that compount over time.
As the benefits compound, they may be hard to discern in the short term, but over the years your company starts to build structural advantages over your competitors. This means, not only you enjoy better margins, but you will enjoy better margins for longer as you build defenses against competitive pressures. You will have a wider distribution network, larger customer base, higher proportion of repeat buyers, better access to high quality employees who are attracted to your business so you spend less time and money in marketing, etc. Higher scale also helps improve margins as you enjoy economies of scale.
World class businesses are built upon such small incremental improvements that compound over time. With astute use of consulting services, you can grow your business exponentially, instead of getting bogged down in daily grind and fighting small inconsequential fires at all times.
Conclusion: Do You Actually Need It?
If you are optimizing your business but not seeing any progress, you very likely need strategy and operations consulting service. If you are struggling with your decision making resulting in unclear direction and inconsistend execution, you may have a very high ROI opportunity to improve your busines with the right support.
Strategy determines direction. Operations determine results. The right intervention aligns both and that is where real growth happens.
Photo by Alvaro Reyes on Unsplash