Archive for November, 2010

Lean Pathways . . . and Results-Based Consulting

Posted November 28, 2010 By Fletcher Groves

The invitation – it was both an offer and a request – came from a friend, colleague, and fellow traveler: Attend the 2010 LPI Fall Conference, give us your perspective on the homebuilding vertical space, and share your thoughts on the financial aspects of Lean, on how to connect measures of operating performance to business outcomes.

SAI Consulting is the latest Market Partner of Lean Pathways, Inc., what is known as LPI (http://www.leansystems.org), an international Lean Business System consulting consortium.

The roots of Lean in LPI are deep and bonafide; they have experience with an impressive number of companies, starting with Toyota. The President of LPI is Pascal Dennis, who extended the invitation. Pascal and I go back, oh, at least seven years, with the same client, a large-not-as-large-as-before, privately-held production homebuilding company; Pascal and I would both tell you that our mutual client is a progressive homebuilding enterprise with a remarkable, visionary owner.

Over the years, as Lean has become more mainstream, it has moved past the early adapters on the sigmoid curve, and is now touching on the early majority. LPI sees this as a threat. The fear is Lean has lost its edge, has become an accepted part of so-called best practices, and is in danger of stalling, as companies forget many of the lessons of the past. LPI also sees this as an opportunity.

LPI is very intent on determining what the “next big thing” will be, very focused on understanding the makings of the next curve that will take Lean to a new, higher level. There are new industries, more diverse clients, new approaches to delivering what is essentially the Toyota Production System. There is a recognition that Lean Thinking needs to be extended beyond manufacturing, into the functions and processes that lie both upstream – in marketing, design, and engineering – and downstream – in distribution, sales, and customer service.

Most importantly, there is an understanding at LPI that Lean has to translate improvements in operating performance into business outcomes, like better profitability, higher Return on Assets, and stronger cash flow; there is a realization that there has to be a Return on Lean Investment.

From that standpoint, SAI is a nice offset to LPI. We operate in different verticals (homebuilding and, now, financial services), with different parameters and different requirements that require different approaches. Despite our noted expertise in process redesign and improvement, our homebuilding client base requires that we operate more to the project management end of the process-project management spectrum. After all, homebuilding is not manufacturing; it is essentially Project Portfolio Management with embedded processes.

Most importantly for LPI, SAI has a well-reasoned approach to results-based consulting.

We are not delusional. In these economic circumstances, we work with clients any way we can. We will work under either a traditional, fee-for-service consulting model, or under a results-based consulting model. However, we prefer to work with clients (and be compensated) on the basis of the results – on the basis of the business outcomes – that our consulting produces.

Under a traditional, fee-for-service consulting approach, the work specified in a contract is delivered and the consultant is paid a fee, either a fixed amount, or an amount based on time. As the consultant, we are careful to only recommend and deliver consulting work that satisfies a true need or solves a real problem, but, under a traditional consulting arrangement, we are paid — like every other consulting firm – on the basis of the work product delivered, not the value or the results that it ultimately generates.

Every time a client engages a consultant, there is a risk/reward ratio associated with that decision. For some clients, the risk/reward ratio associated with a traditional, fee-for-service approach is acceptable; a traditional consulting arrangement involves less cost. The risk is that the project may not produce the intended benefit. In addition to risk/reward ratios that turn upside-down, there are limitations associated with a traditional consulting approach.

The type of high-yield, value-driven, results-based consulting SAI wants to deliver often requires more than a traditional consulting approach can provide – a whole host of requirements that make a traditional consulting approach problematic. It often requires (from us) a more comprehensive approach, more flexibility, longer timeframes, more attention to capabilities, more risk tolerance, more working capital, and a willingness to wean the client of dependency on us. If high-yield, value-driven, results-based consulting was structured under a traditional consulting arrangement, the risk/reward ratio would be unacceptable.

The work consultants do should make a difference, their consulting should contribute value (in the form of benefits that exceed costs), and the consultant-client relationship should be based on partnering that produces meaningful results (not on intent or meeting work product specifications). Consultants need to provide more than expertise. Consultants need to obtain results, they need to share accountability for those results, and – in terms of compensation – they need to share in those results.

We would prefer to focus our work with clients (and base our compensation) solely on the value that our consulting creates on the client’s behalf. We would prefer to work with clients (and be compensated) solely on the basis of the results that our consulting enables them to achieve, measured in terms of the actual improvements to business (financial) outcomes.

That is why we do results-based consulting.

The choice of a consulting approach alters the relationship, and it narrows the focus. Under either approach, clients should receive the same, high-level expertise, experience, industry knowledge, and consulting capability that distinguishes a good consulting firm from a lousy consulting firm; in LPI parlance, “Big Consulting Firm Disease” would be considered just a branch of the “Big Company Disease” tree.

The difference is, a results-based consulting approach makes the consultant the client’s partner.

In his new book (“The Remedy”), the words of one of Pascal’s characters are aimed at the relationship between customers and suppliers, but they apply to the relationship between clients and consultants: “Partner means trust, friendship, and shared goals . . . we have a shared path . . . either we succeed together — or we fail together . . . [it] is not just good ethics, it is also good business”.