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|In: Business Ethics|Last Updated:

“Competition keeps SaaS profits artificially low.”

Authors don’t write their own headlines, so don’t blame Kevin Kwang. Someone at ZDNet stuck this in front of his perfectly reasonable analysis of why so many SaaS vendors aren’t profitable.

Memo to headline-person: You have it backward. Lack of competition keeps profits artificially high. Markets are supposed to have it; thin margins are supposed to result.

In fact, if Kwang is to be believed, the SaaS marketplace exemplifies all that’s good and right about capitalism: Instead of harvesting profits, SaaS vendors are plowing them back into their services to make them more attractive, so as to gain marketshare, so as to either: (1) survive the inevitable marketplace consolidation; or (2) be acquired by a larger, more diversified player, to become part of their product portfolio, to survive the inevitable marketplace consolidation.

We management consultants understand these things.

We management consultants understand many things. Including, it appears, things we don’t understand at all.

My friend Jeevan Sivasubramaniam, executive managing editor at Berrett-Koehler, sent me a reproachful little book titled I’m Sorry I Broke Your Company: When Management Consultants Are the Problem, Not the Solution (Karen Phelan, 2013). It reinforces the old joke that the 90 percent who are bad ruin it for the rest of us.

Which is too bad. Not that the old joke is wrong. It’s that when management consulting engagements go wrong, it’s usually because of an unspoken conspiracy between the consultants and the person who brought them in — a point the book makes well, but that’s likely to get lost by skimmers who read nothing but the title and a few chapter heads.

So here, in my own disorganized way, are three random thoughts on the subject. Ms. Phelan and I mostly agree on them; they are, in any event, my own:

Don’t bring in a consultant to read a script. I’ve had this sort of engagement, not that I knew it when the client asked us in. If you know the right answer, but need an outside voice to explain it to your boss, the board of directors, the IT steering committee or what-have-you, you have a bigger problem than the need for an outside voice to explain it.

You have a credibility problem, and no outside consultant will fix that. My advice: Hire an actor to read the script for you. Actors come a lot cheaper than management consultants and reading scripts convincingly is their job.

Then hire a leadership coach to help you figure out how to fix your credibility problem.

Don’t bring in a consultant who promises measurable improvements. A subtlety here: Measurable improvements are fine. That isn’t the problem.

The problem happens when the management consultant tells you which measure or measures will improve. “We’ll cut waste,” is terrific, so long as you brought in a consultant to cut waste. If what you need is to improve your ability to deliver customized results, though, it isn’t so terrific, especially as many of the “improvements” consultants make to cut waste eliminate the ability to deliver customized results.

Even that isn’t the worst that can happen. I’ve seen process consultants “improve” a process by “discovering the pain points,” making changes and then discovering which measures improved. Whichever ones they were, they’ve delivered on their promise, never mind that other measures their client cared about more got worse.

Measurable improvements? They’re just fine. But deciding what “improve” means is your job. So is insisting you be informed of the trade-offs … of which measures will get worse as part of the process … in advance.

Bringing in a consultant isn’t a sign of weakness: As a manager at any level, you aren’t supposed to be an expert in everything. Sometimes, what the organization needs isn’t where you have your expertise.

For example: Many managers are excellent at operations … at getting the work out the door every day, making quotas, maintaining quality, keeping employees motivated and so on. Many of these managers aren’t all that good at making change happen, because (1) that isn’t their day-to-day job, and (2) making change happen in an organization is complicated.

When what the organization needs isn’t something you’re all that good at, asking for help is a sign of strength.

And oh, by the way: Sometimes, the hardest part is recognizing a need that’s very important but is also outside your repertoire. That just might be the best reason to bring in a consultant — to help you when the problem is that you don’t know what you don’t know.

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|In: Industry Commentary|Last Updated:

MY SIDE WON!!!

No, not President Obama. Not the Democratic party either and not any ballot initiatives, state constitutional amendments, or other specific candidates either.

Nate Silver won this election, and it matters to all of us.

Silver, in case you somehow managed to ignore all political polling this election season, is the polling class’s version of Moneyball’s Paul DePodesta (Peter Brand in the movie) — a hard data and analytics guy whose results proved superior to gut feelings and personal preferences.

Longtime readers will recall that KJR is affiliated with the Competence Party — a mythical organization built on eleven principles, three of which are:

  • Our decisions will always begin by examining the evidence. And we will recognize that when our cherished principles collide with the evidence, the evidence wins. Every time.
  • With new evidence we will reconsider old decisions. Without it, we won’t.
  • We will never mistake our personal experience for hard evidence. Personal experience is the evidence we know best. It’s also a biased sample.

Nate Silver is our kind of guy, and this last election just might turn out to be a turning point (given Malcolm Gladwell’s advocacy of “the power of thinking without thinking” in Blink I refuse to say “tipping point”) … where was I? Oh, yes, Silver’s dead-on predictions provide a reason for cautious optimism that in the contest for business decision-making’s soul, evidence and analysis might regain (or maybe just gain) primacy.

If they do, there’s a lesson to be learned from comparing how Nate Silver did so well to how Wall Street’s equally nerdy “quants” fared so poorly.

It’s a simple lesson, too. Here’s what it isn’t — that Nate Silver was of better character and integrity than the quants. I’m not saying he is and I’m not saying he isn’t. I’m saying that if we place our bets based on character, we’re likely to place them quite poorly.

No, it’s a matter of incentive. Silver won by having the most accurate predictions. He’s a celebrity because he called 49 states correctly. Or maybe 50, depending on whether Florida ever does declare a winner, and, if it does, who it is. In spite of all the gas he took during the run-up to the election about being biased (and really, does anyone think anyone decides who to vote for based on opinion poll results?), his only bias was in needing to be the most accurate analyst out there.

Compare that to the quants. Their financial rewards were front-end loaded — they made their money when their financial instruments sold out. They had every reason to understate risk and overstate payoff.

This doesn’t mean they did so deliberately. It’s much more likely they “knew” the picture was great (and knew the answer management wanted to hear). They sold themselves, and so didn’t dig deeply enough into the underlying assumptions of the models.

They rationalized, that is, and did so with surpassing sophistication.

Nate Silver, in contrast, didn’t just aggregate poll results. He dug into the methodologies followed by each poll to determine their relative trustworthiness, and weighted them accordingly.

Business leaders who want Nate Silver results will need to be very careful to avoid rewarding analysts who follow the quant model. They’ll be making decisions based on what the analysts tell them, so if there’s even a whiff of a preferred answer in the wind, some analysts will smell it and unconsciously fiddle things to get it.

And most managers, faced with conflicting analyses, will unfailingly choose the analysis that tells them what they want to hear.

Which is why KJR has made such a fuss, so often, about the critical role the business culture plays in all this, and in particular establishing a culture of honest inquiry.

If your “quants,” analysts, “data scientists,” or … call them by their proper name and background, statisticians … operate within a culture of honest inquiry, they will give you unbiased answers, because what you care about is whether they turn out to be right or not. Otherwise, I, Silverishly, predict their predictions won’t be reliable.

There’s a danger in the Nate Silver model, by the way, not that I’m particularly worried about it. It’s the impact of relying on aggregators rather than front-line researchers. If the lesson learned here is that aggregating the work of multiple polls is what led to Silver’s best-in-class results, that will give us fewer source polls and more aggregation of those polls. That would be bad, because without reliable polls to draw on, aggregation is nothing more than garbage in, garbage out.

On the other hand, “garbage” might be just the right metaphor for most pre-election coverage.

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