Management in Action Social, Economic & Ethical Issues.

Management in Action Social, Economic &

Ethical Issues

Aim• The course aims at bringing the students closer to reality by

developing their understanding of the professional prerequisites to practice of management in terms of required skills and attitude to respond proactively to rapid discontinuous change in business environment. Integrative in approach, this course aims at developing not theoreticians but practitioners who are expected to sense the ongoing conflict between environmental change and internal desire of management for stability.

ObjectiveAt the end of this course the students will understand:

• Various Issues Involved in practicing management particularly in the Indian context

• Possible approaches to Ethical, Economic and socially acceptable Decision-making problem solving through examination of alternative paths.

Module I: Introduction• Modern Management Practices and Issues

Involved, Outsourcing Management Services and Evolution of Management Consultancy, Skills-set Required for Management Consultants. Consulting and performance counseling.

Module II:The Process of Management Consulting

• Consulting Proposals. Identification and Definition of Problem, Fact-Finding Leading to Solution Development and Implementation, Developing Strategic and Tactical Plans and Subcontracting, Pricing of Consultancy, Acquiring and Developing Talents for Consulting.

Module III: In-house Management versus Management Outsourced

Why a Sense of Skepticism and Unease Towards Management Consultants. Cost versus Value of Advice, Separating Consulting Success from Consulting disaster. Some Revealing Situations.

Module IV:Cross Cultural Management Systems and Processes

• Types of organizational culture, Strength of organizational culture, Function of organizational culture, Importance of culture to the organization, Cultural Models, Cross- Cultural Perspectives, Geert Hofstede and Cross- Cultural Issues

Module V: Economic and Social Issues in Management

• Adaptation to Changing Environment in General and Economic Environment in Particular, Economic Growth and Change Areas, Emerging Opportunities in Various Sectors including Social Sector, Management Practice and Cultural Issues, The global Political Situation, The Global Competitive Environment and the internal scene in India, War Game.

Module VI:Ethical Issues in Management

• Relationship among Various Stakeholders, Reasons for Conflict of Interests Among Stakeholders, Corporate Governance and Ethics. Why Unethical Decisions Leading to Conflicts are Taken, Power and Politics, Initiatives on Corporate Governance by the Governments.

The Genesis• Roots are in Management Consultancy

• Emergence from two concept based issues:1. Total Quality Management & Business Ethics and

Corporate Governance2. Theoretical frameworks were drawn from Strategy,

Finance & HR

Management Consultancy

• "The services provided by an independent and qualified person or persons in identifying and investigating problems concerned with policy, organization, procedures and methods, recommending appropriate action and assistance in implementation".

Management Consultants• Known as Evolutionary rather than

Revolutionary.

• Application must be Collaborative and Authoritarian.

• Doctors of Management.

Management Practices & Outsourcing

• What is Outsourcing?• What is being Outsourced?• Core Expertise need to be

retained, nurtured and stretched.

Why to hire Management Consultants

• Client require the skills of the Management Consultants for two purposes:

• Identification of the “Problem”.• Problem Identification(s), Achieving the

objectives and effective performance.

Why to hire Management Consultants

• Need for fresh ideas from Entrepreneurial Perspective.• Need for improved performance from the perspective of

Operations, Distribution and Logistics, functional areas of Marketing, Finance, HR and IT.

• Need for Efficiency and Effectiveness.• Need to evaluate performance.• Need to train employees.• Need for total turnaround.

Client’s Expectation(S)

• Independent Viewpoint

• Special Qualifications

• Realistic Gains not just moving the wheels.

Attributes of Successful Consultants

• Powerful Negotiator• Effective Communicator• Reservoir of Self Control• Understanding of Individual Psychology• Understanding of Group Psychology• Understanding of Organizational Psychology• Complete mastery of the given “area”.

Barriers common to Consultants

1. Know – it – all attitude2. Inability to understand technical language3. Inadequate background or knowledge4. Poor organization of ideas5. Differences in perception6. Prejudice or bias7. Personality conflicts8. Tendency not to listen9. Resistance to change

Barriers common to Consultants

10. Lack of credibility11. Inability to understand Non-Verbal Communication12. Hostile attitude13. Lack of feedback14. Differences in status or position15. Information Overload16. Too many Gatekeepers17. Overly Competitive Attitude

“As long as we have hope, we have direction, the energy to move and the map to move by, we have a hundred alternatives, a thousand paths, and an infinity of dreams."

Organizational Appraisal

Organizational Capability Factors• Financial Capability Factors• Marketing Capability Factors• Operations Capability Factors• Human Capability Factors• Information Management Capability Factors• General Management Capability Factors

Financial Capability Factors

• Factors related to sources of funds: Capital structure, Procurement of capital, Financing pattern, Working capital availability, Borrowings, Capital and Credit availability, Reserves and Surplus, and relationship with lenders, banks and financial institutions.

• Factors related to usage of funds:Capital investment, fixed asset acquisitions, current assets, loans and advances, dividend distribution, and relationship with shareholders.

• Factors related to Management of funds: Financial, accounting, and budgeting systems, management control system, state of financial health, cash, inflation, credit, return and risk management, cost reduction and control, and tax planning and advantages.

Check Point: Financial Capability

• Access to financial resources.• Relationship with financial institutions.• Level of credit worthiness.• Capital budgeting system.• Cost of capital as compared to competitors.• Level of shareholder’s confidence.• Management control system.• Tax benefits due to various government policies.

Marketing Capability Factors

• Product-related factors: variety, differentiation, mix quality, positioning, packaging and others.

• Price-related factors: pricing objectives, policies, changes, protection, advantages, among others.

• Place-related factors: distribution, transportation and logistics, marketing channels, marketing intermediaries, and so on.

• Promotion-related factors: promotional tools, sales promotion, advertising, public-relations, and so on.

• Integrative and systems factors: marketing mix, market standing, company image, marketing organizations, marketing management information systems and so on.

Check Point: Marketing Capability

• Variety of products.• Quality of products.• Positioning. • Prices as compared to similar products in the market.• Price protection due to Government policies.• Quality customer services.• Effective distribution system.• Effective sales promotion.• Profile advertising.• Company and product image.• Effectiveness marketing management information system.

Operations Capability Factors

• Factors related to production system: capacity, location, layout, product or service design, work systems, degree of automation, extent of vertical integration, and others.

• Factors related to the operations and control system: aggregate production planning, material supply, inventory, cost and quality control, maintenance system and procedures, and so on.

• Factors related to R & D system:personnel, facilities, product development, patent rights, level of technology used, technical collaboration and support, and so on.

Check Point: Operations Capability

• Level of capacity utilization.• Plant location.• Degree of vertical integration.• Sources of supply.• Effective control of operation costs.• Inventory control system.• Level of R & D personnel.• Technical collaboration

Human Capability Factors

• Factors related to Systems & Processes: SOPs, System for manpower planning, selection, development, compensation, communication, appraisal, position of the HR development within the organization,

• Factors related to organization and employees: type of system, corporate image, quality of managers, staff and workers, perception about the image of the organization as an employer, availability of developmental opportunities for employees, and so on.

• Factors related to industrial relations & Salutary conditions for employees: Organizational Ergonomics, Union management relationships, collective bargaining, working condition, safety, welfare and security, morale, employee satisfaction and so on.

Check Point: Human Capability

• Genuine concern for HR and development or facade.• Efficient and effective SOPs.• The organization is perceived as a fair and model employer.• Learning opportunities and facilities.• Congenial working environment.• Motivation level of workforce.• Level of organizational commitment not loyalty.• Level of absenteeism.• Safe and salutary working conditions.

Information Management Capability Factors

• Factors related to acquisition and retention of information: Sources, quantity, quality, and timeliness of information, retention capacity, and security of information

• Factors related to the processing and synthesis of information: Database management, systems, software capability,

General Management Factors

• Factors to the General Management System: Strategy Formulation, Implementation, Evaluation, Strategy evaluation system, management inf

THE ENVIRONMENTAL CHANGES

* CHANGES IN TECHNOLOGY

* PROLIFERATION OF NEW PRODUCTS

* FASTER COMMERCIALIZATION OF NEW PRODUCT IDEAS AND PATENTS

* BUSINESS BOUNDARIES BLURRED DUE TO THE OVERARCHING TECHNOLOGIES

* SOCIO-POLITICAL CHANGES

* GOVERNMENTS BECAME BARGAINERS IN THE CONDUCT OF BUSINESSES

* EMERGENCE OF GLOBAL FIRMS & BRANDS

* NEW AFFLUENCE OF CONSUMER, CHANGING TASTES & PREFERNCES OF CONSUMERS

NEW DEMANDS FIRMS HAVE TO FACE

* TO BE STRATEGICALLY ALERT & FUTURE ORIENTED.

* TO BE ABLE TO TAKE RISKS IN TAPPING OPPORTUNITIES.

* TO BE INSULATED AGAINST ENVIRONMENTALTHREATS.

* TO DEVELOP COMPETENCE FOR ASSIMILATING CHANGE FASTER.

* TO RESPOND EFFECTIVELY AND ECONOMICALLY.

* TO GROW BIG.

* TO BE ABLE TO GENERATE LARGE RESOURCES.

* TO GAIN EXPERTISE IN TECHNOLOGY, MARKETING AND DECISION SUPPORT SYSTEMS.

MYTHS ABOUT QUALITATIVE ANALYSIS

• Just a set of specific methods such as case studies, interviews

etc.

• Qualitative research is done by researchers who are poor in

statistics

• Only concerned with aspects of self

• Anything that uses the word ‘subjective’ becomes qualitative

inquiry

• Used only in the backdrop & against quantitative research

• Is fictional work and is not scientific

WHY CLIENTS HIRE CONSULTANTS?

To learn To save moneyTo avoid losses

To solve problemsTo improve safetyTo improve image

To improve efficiencyTo hire new employees

To improve performanceTo increase sales and profits

To help through busy periods

To introduce, facilitate and sustain change

To open up new markets and opportunities

To comply with laws, standards and regulations

To put new systems, methods and practices into use

To confirm their ideas, concepts, plans and strategies

To facilitate transitions, mergers, takeovers and downsizing

There’s no business like consulting business…

They [Management Consultants] are people who borrow your watch to tell you what time it is and then walk off with it.

-R. Townsend, Up the Organization

The Advantages of Using Consultants

•Getting a second opinion•More flexibility in hiring•Fresh perspective and views•Expertise that is lacking in the organization•Opportunity to learn and train employees•Work is performed faster and is of better quality

Public Perception of Consultants

• A consultant is a person who takes your money and annoys your employees while tirelessly searching for the best way to extend the consulting contract.

• Consultants will hold a seemingly endless series of meeting to test various hypotheses and assumptions. These exercises are a vital step toward tricking managers into revealing the recommendation that is most likely to generate repeating consulting business.

• After the correct recommendation is discovered, it must be justified by a lengthy analysis. Analysis is designed to be as confusing as possible, thus discouraging any second guessing by staff members who are afraid of appearing dense.

Public Perception of Consultants

• Consultants use a standard set of decision tools that involve creating alternative scenarios based on different assumptions. Any pesky assumption that does not fit that does not fit the predetermined recommendation is quickly discounted as being uneconomical by the consultants.

• Consultants will often recommend that you do whatever you are not doing now.

• Consultants do not need much experience in industry in order to be experts; they learn quickly.

Public Perception of Consultants

• Consultants eventually leave, which makes them excellent scapegoats for major management blunders.

• Consultants can schedule time in your boss’s calendar because they don’t have your reputation as a troublemaker who constantly brings up unsolvable issues.

• Consultants often are more trusted than your regular employees.• Consultants will return phone calls because it is all billable time to

them.• Consultants work preposterously long hours, thus making the regular

staff feel worthless for only working 60 hours a week.

PARADIGMS IN ANALYSIS

LOGICAL POSITIVISM INTERPRETIVIST CRITICAL THEORY

• Systematically contest creation of knowledge about the social

world

• Each paradigm/world view guides inquiry

• Ascribe to different ““ontologyontology”, “”, “epistemologyepistemology”” &

““methodologymethodology””

• Define what falls within & outside the limits of legitimate research

• Question of methods are secondary to question of paradigms

• Debate between quantitative & qualitative refers to paradigmatic

forces

• Paradigms are ‘human constructions’: No construction is

incontrovertibly

right

UNDERSTANDING OPERATIONS DIFFER WITH EACH PARADIGM

Assumptions Methods/Procedures

Data collection &analysis

Systematization &comparison of

information

Observation ofreactionsInterpretation

AREA OF THEORY AREA OF METHODS

AREA OF THEORY AREA OF METHODS

operationalisation

explanation

verification

3 important questions unique to each paradigm …

• What is the nature of reality & what can be known about it?

• ‘How things really are’ & ‘how things really work’?

ONTOLOGICAL

EPISTEMOLOGICAL

• What is the nature of relationship b/w the knower & the known?

• What can be known?

METHODOLOGICAL

• How can inquirer go about finding out whatever can be known?

• What rules & procedures would help us understand reality?

LOGICAL POSITIVISM

• Reality is assumed to ‘exist’ out there

• Driven by immutable natural laws

• Knowledge of “the way things are” reflected by context free

generalizations

• Goal of inquiry is to form cause-effect laws: PREDICTION &

CONTROL

• Research can converge on the ‘true’ state of affairs

ONTOLOGY REALISMREALISM

LOGICAL POSITIVISM

ONTOLOGY REALISMREALISM

• Reductionist & deterministic posture

• Social relationships are regarded as “facts” to be investigated

‘objectively’

• Something that can be known outside oneself

• Primary aim of social science research is ‘discovery’ of law of

behaviour

• Associated with empirical-analytical “hard” paradigm of research

LOGICAL POSITIVISM

EPISTEMOLOGY DUALIST & OBJECTIVISTDUALIST & OBJECTIVIST

• Researcher & the researched “object” are independent entities

• Researcher is the “expert”

• “Neutrality” of researcher is desired & emphasised

• Inquiry takes place as through a one-way-mirror

• Values, beliefs, emotions, or anything “subjective” is prevented

METHODOLOGY EXPERIMENTAL & MANIPULATIVEEXPERIMENTAL & MANIPULATIVE

• Questions/Hypothesis stated in propositional form

• Subjected to empirical test to verify theories

• Possible confounding conditions are carefully controlled

• Replication of results

• Shattering of the ‘objectivist’ ideal of positivism

• Pluralisation of life worlds

• Research conducted in the real world

• Knowledge needs to be ‘locally’, ‘temporally’ & ‘situationally’ relevant

• “Sensitizing Concepts” required to approach social contexts

• Recognition of central role of language & discourse

• Concern with process & individual rather than statistics & variables

• ‘Human face’ is lost in statistical manipulations

DISENCHANTMENT WITH POSITIVISM

DISENCHANTMENT WITH POSITIVISM

• Knowledge production is relative to frames of reference

• Truth is not absolute and is decided by human judgment

• Positivism: Context stripping, Exclusion of meaning, Theory

ladenness

• Crisis of representation

• Exclusion of ‘discovery’ dimension in positivism

• Etic/Emic dilemma: Inability of general data to individual cases

• Received view of natural science followed blindly by positivists

• Human science should study web of meanings that people live

in

INTERPRETIVIST PERSPECTIVE

• Reality is in the form of multiple, intangible mental constructions

• Socially & experientially based, local & specific in nature

• Constructions are alterable as are their associated ‘realities’

• Systematic analysis of socially meaningful action

• Understanding & interpretation of how people create & maintain

their world

ONTOLOGY RELATIVISTRELATIVIST

INTERPRETIVIST PERSPECTIVE

• Purpose of research is to discover how people construct meanings

• Meaning is maintained by interaction

• Generalizations emerge from specific details of observations of

social life

• Emphasizes everyday knowledge

• Merely suggest “directions along which to look” rather than

prescriptions of “what to see”

ONTOLOGY RELATIVISTRELATIVIST

INTERPRETIVIST SOCIAL SCIENCE

EPISTEMOLOGY TRANSACTIONAL & SUBJECTIVETRANSACTIONAL & SUBJECTIVE

• Researcher and the researched are interactively linked

• Co-construction of knowledge by the researcher & the

researched

• Subjectivities of the researcher & the researched are integral

part

• Researchers’, reflections, impressions, feelings become dataMETHODOLOGY HERMENEUTICAL & DIALECTICALHERMENEUTICAL & DIALECTICAL

• Interactions between researcher & the researched elicit & refine

data

• Researcher is central to the process of research

• Thick descriptions, stories, narratives

INTERPRETIVIST

MAJOR INFLUENCES

Verstehen

• “Empathic Understanding”

• The world of “lived experiences”

• Situation-specific meanings constitute the general object of investigation

• All of us our particular actors, in particular places, at particular times

• Uniqueness of human inquiry

• Meaning of social phenomena

• Celebrate the permanence & priority of the real world of first-person

• Useful in the context of discovery but not in the context of justification

INTERPRETIVIST SOCIAL SCIENCEMAJOR INFLUENCES

HERMENEUTICS

• Subjective experience and interpretation of text

• Text as representations of reality & versions of the world

• Processing experiences of social environments into texts

• Transformation of texts in understanding occurs through interpretation

CONSTRUCTION

INTERPRETATIONEXPERIENCE

INTERPRETIVIST SOCIAL SCIENCEMAJOR INFLUENCES

SYMBOLIC INTERACTIONISM

• See humans as purposive agents who engage in self-reflexive behaviour

• Human beings act towards their environments on the basis of their meanings

• Meanings derive from communication that is symbolic for creating knowledge

• Meanings are established & modified through an interpretive process

• Builds on the concept of self, language, social setting, culture, joint act

• Humans ‘act’, they do not merely ‘respond’

CRITICAL THEORY

• Reality is assumed to be constantly evolving over time & is

apprehendable

• Reality shaped by social, political, cultural, economic, gender,

ethnic forces

• These forces crystallize into series of structures that are ‘real’

• Assumes: change is rooted in

conflict/tensions/contradictions/paradoxes

• Critique conditions & implies a plan of change & provide vision of

future

• Aim is to smash myth & empower people to change society

• Advocacy & activism are key concepts

• Criterion for progress is that emancipation should occur

ONTOLOGY HISTORICAL REALISMHISTORICAL REALISM

• Researcher and the researched are interactively

linked

• Values of researcher & situated ‘others’ influence

inquiry

• Findings are value mediated

EPISTEMOLOGY TRANSACTIONAL & SUBJECTIVISTTRANSACTIONAL & SUBJECTIVIST

CRITICAL THEORY

METHODOLOGY DIALOGIC & DIALECTICALDIALOGIC & DIALECTICAL

• Dialogue b/w researcher & participant

• Dialogue must be dialectical in nature to transform ignorance

A DEBATE

QUANTITATIVE RESEARCH QUALITATIVE RESEARCH

• Logical Positivism

• Natural science world view

• Hypo-deductive

• Particularistic

• Objective/ Outsider centered

• Outcome oriented

• Attempt to control variables

• Goal: find facts & causes

• Static reality

• Verification oriented

• Confirmatory

• Inquiry is value free/neutral

• Interpretive/Phenomenological

• Naturalistic world view

• Inductive

• Holistic

• Subjective/ Insider centered

• Process oriented

• Relative lack of control

• Goal: understand actor’s view

• Dynamic reality

• Discovery oriented

• Exploratory

• Inquiry is value bound

HOW TO AVOID THIS SITUATION?

Consultant's DILEMMAS

• How does the Consultant make a difference in the production of data?

• What does the Consultant do to retain the “voices of participants”?

• What role should the Consultant' take? ONLOOKER, PARTICIPANT, OBSERVER

• Does he need to keep a check on his/her biases?

• Will the Consultant be able to represent the ‘true’ version of accounts?

• How does one ensure validity and reliability of the investigation?

• Can Consultant unmask his emotions while interacting with participants?

• Are there any established standards of data processing?

• Can this study persuade the readers of its worthiness?

“GENRE” OF QUALITATIVE METHODS

QUALITATIVE METHODS

DATA COLLECTION TECHNIQUES DATA ANALYSIS APPROACHES

DATA COLLECTION TECHNIQUES

• PARTICIPANT OBSERVATION

• INTERVIEW

• FOCUS GROUP DISCUSSIONS

• CASE STUDIES

• TEXTUAL MATERIAL: Autobiographical accounts, document analysis

DATA ANALYSIS APPROACHES

• GROUNDED THEORY

• NARRATIVE ANALYSIS

• THEMATIC ANALYSIS

• DISCOURSE ANALYSIS

• CONTENT ANALYSIS

• CONVRSATION ANALYSIS

• ETHNOGRAPHY

ROLE OF QUALITATIVE RESEARCHER

DATAGENERATIO

N

ENTERING FIELD

DATA ANALYSIS

REPRESENTING

DATA

ROLE OF QUALITATIVE RESEARCHER

• Researcher an integral part of the research process

• Requires sustained contact & immersion in the ‘lived life’ of participants

• “Get close” or insider to the participants world

• Onlooker Vs Being an actor

• Expert Vs Learner:

• “I WANT TO KNOW WHAT YOU KNOW, IN THE WAY YOU KNOW IT”

• Detachment Vs Involvement

• Rapport Vs Empathy

• Co-constructor of knowledge

JUDGING QUALITATIVE RESEARCH

TRADITIONAL TERMS NATURALISTIC TERMS

• Internal Validity

• External Validity

• Reliability

• Objectivity

• Credibility

• Transferability

• Dependability

• Confirmability

FEW ANSWERS…

ART OF REFLEXIVITY

• “Disciplined self-reflection”• Making the process of data production & analysis explicit• Experience of doing research is critically evaluated throughout• Maintaining reflexive journal/memo taking

Personal Reflexivity

FunctionalReflexivity

DisciplinaryReflexivity

• Knowing who you are• Your individuality as a researcher• Influence of personal interests/biases on research

• Continuous examination of the practice/process of research to reveal assumptions, values & biases

• Reflecting on larger issues that include research methodology & questioning psychology itself

REPRESENTATION

• Representation doesn’t mean ‘writing up’ the findings after the study

• Difficulties inherent in representing the “other”

• Acknowledgement that self & other are entangled

• Researcher’s struggles/crisis is also a part of data

• 2 views: (a) Researcher can directly capture lived experience (b) Experience is created in the text written by researcher

• How does a researcher understand & communicate participant’s reality

• Presentation of data say as much about the researcher as the participant

FEW ANSWERS…

TRUSTWORTHINESS

FEW ANSWERS…

• Encompass efforts to reduce or make explicit sources of bias

• Increase the investigators’ & readers’ exposure to the phenomenon

• Provide thick descriptions

• Disclosure of the researcher’s orientation

• Intensive & prolonged engagement with the material

• Persistent observation

• Triangulation

• Discussion of findings with others

• Iterative cycling b/w observation & interpretation or b/w “dialogue & text”

• Responsible search for negative instances

• Seeking consensus through peer briefing

THEORETICAL SENSITIVITY

FEW ANSWERS…

• An awareness of the subtleties of meaning of data

• Having an insight, ability to give meaning to data, capacity to understand

• Being sensitive to data and making appropriate decisions in the field

• Comes from thorough study of literature, professional & personal experience

ORGANIZATIONAL PARADIGMS

20TH Century• Stability, predictability

• Size and scale • Top-down “command &

control”

• Organizational rigidity

21st Century• Discontinuous change,

continuous improvement

• Speed and responsiveness

• Empowerment; leadership from everybody

• “Virtual” organizations, permanent flexibility

20TH Century

• Control by rules & hierarchy

• Information closely guarded

• “Rational,” quantitative analytics

• Need for certainty• Reactive; risk-averse• Process driven• Corporate independence

and autonomy• Vertical integration

21st Century

– Control by vision and values– Information shared– Creativity, intuition

• Tolerance of ambiguity

• Proactive;entrepreneurial• Results driven• Interdependence; strategic

alliances• “Virtual” integration

20TH Century

• Internal organizational focus

• Consensus • Domestic market

orientation• Competitive advantage • Sustainable competitive

advantage • Competing for today’s

markets

21st Century

• Focus on compétitive environ ment

• Constructive contention• International focus • Collaborative advantage• Hyper-compétition,

constant re-invention of advantage

• Creating tomorrow’s markets

Iceberg Corporate Value Potential

Only 10% of the value of any firm we are able to study 90% is hidden days of financial analysis are over.

Today we need to study the “Iceberg Balance Sheet”.

This has 3 kinds of capital:• Human Capital• Stakeholder Capital• Shareholders Capital

Financial Capital

Structural Capital (+ / -)

Structural Capital (+ / -) * Individual competencies & innovation potential Capacity for teamwork Values

Stakeholder Capital Customer loyalty & ideas Distribution & marketing

channels Strategic alliances

The Disadvantages of Using Consultants

•It is expensive•Desired results are not guaranteed•It may create bad vibes amongst employees•Projects and issues may blow up out of all proportions

How do Consultants charge for their services?

Per Hour or Per Day basisRetainer basis Fixed-price assignmentsPerformance-based fee (Contingency Fee)

Contingency fees

A client complained that he couldn’t afford a consultant’s hourly fee. ‘Instead of doing the job on a time and material basis, I’m willing to do it for a contingency fee,’ responded the consultant.‘What is contingency fee?’ asked the client.‘It’s very simple. If I don’t deliver what I promised, I’ll be left with no money at all,’ explained the consultant‘What if you do deliver what you promised?’ persisted the client.‘Then you’ll be left with no money at all,’ said the consultant.

How consultants market their services?

Membership of community organizations and professional institutions Publishing books and articlesNetworking with other consultantsSpeaking at seminars, conferences and other gatherings attended by both clients and consultantsWord of mouth advertising – recommendations from satisfied clients

Paradigm Shift in Consulting Accountability

Activity–Based Consulting• No business need for the

consulting intervention• No assessment of performance

issues• No specific, measurable

objectives for implementation and business impact

• No effort to prepare stakeholders/participants to achieve results

• No effort to prepare the work environment to support implementation

Result-Based Consulting• Intervention linked to specific

business needs• Assessment of performance

effectiveness• Specific objectives for

implementation and business impact

• Results/expectations communicated to stakeholders/participants

• Environment prepared to support implementation

Activity–Based Consulting

• No efforts to build partnerships with key managers

• No measurement of results or cost benefit analysis

• Planning and reporting on consulting intervention is focused on input

Result-Based Consulting

• Partnerships established with key managers and clients

• Measurement of results and cost-benefit analysis

• Planning and reporting on consulting interventions are focused on output

Methods of Data Collection• Follow-up surveys measure satisfaction from stakeholders.

• Follow-up questionnaires measure reaction and uncover specific application issues with consulting interventions.

• On-the-Job observation captures actual application and use.• Tests and assessment are used to measure the extent of learning

(knowledge gained or skills enhanced).

• Interviews measure reaction and determine the extent to which the consulting intervention has been implemented.

• Focus groups determine the degree of application of the consulting solution in job situations.

• Action plans show progress with implementation of the job and the impact obtained.

• Performance contracts detail specific outcomes expected or obtained from the consulting intervention.

• Business Performance monitoring shows improvement in various performance records and operational data.

Methods for Isolating the Effects of Consulting

• A Pilot group with consulting is compared to a control group without consulting to isolate consulting intervention impact.

• Trend lines are used to project the values of specific output variables, and projection are compared to the actual data after a consulting intervention.

• A forecasting is used to isolate the effects of a consulting intervention when mathematical relationships between input and output variables are known.

• Participants/stakeholders estimate the amount of improvement related to a consulting intervention.

• Supervisors and manages estimate the impact of a consulting intervention on the output measures.

• External studies provide input on the impact of a consulting intervention.

• Independent experts provide estimates of the impact of a consulting intervention on the performance variable.

• When feasible, other influencing factors are identified and the impact is estimated or calculated, leaving the remaining unexplained improvement attributable to the consulting intervention.

• Customers provide input on the extent to which the consulting intervention has influenced their decision to use a product or service.

The Score Card Perspective : Six Balanced Measures

1. Reaction to and satisfaction with the consulting intervention from a variety of different stakeholders within different time frames.

2. The extent of learning that has taken place as those involved in the consulting intervention learn new skills, processes, procedures, and tasks.

3. The success of the actual application and implementation of the consulting intervention as the process is utilized in the work environment.

4. The actual business impact changes in the work unit where the consulting project has been initiated. These values include hard data as well as soft data.

5. The actual return on investment reported as a ratio or in a percentage format. The measure shows the monetary return on the cost of the project.

6. Intangible measures, which are usually soft data items that are not converted to monetary values for use in the ROI formula.

Methods for Converting Data to Money

• Output data are converted to profit contribution or cost savings and reported as a standard value.

• The cost of a quality measure, such as a reject, is calculated and reported as a standard value.

• Employee time saved is converted to wages and benefits.

• Historical costs of preventing a measure, such as customer complaint, are used when they are available.

• Internal and External experts estimate a value of a measure.

• External database contain an approximate value or cost of a data item.

• Participants estimate the cost or value of the data item.

• Supervisors or managers provide estimates of costs or value when they are both willing and capable of assigning values.

• The consulting of staff estimates a value of a data item.

• The measure is linked to other measures for which the costs are easily developed.

Recommended Consulting Costs

• The Cost of initial analysis and assessment, possibly prorated over the expected life of the intervention.

• The cost of developing solutions.• The cost of acquiring solutions.• The cost of application and implementation of the

intervention.• The cost of maintenance and monitoring• The cost of evaluation and reporting• The costs of administration and overhead for the

consulting intervention, allocated in some convenient way

Consulting Benefits

BCR = _______________

Consulting Costs

Sometimes the ratio is stated as a cost-benefit ratio, although the formula is the same as BCR. The return on investment uses the net benefits divided by consulting costs. The net benefits are the consulting benefits minus the costs. In formula form, the ROI becomes.

Net Consulting benefits

ROI% = _________________ X 100

Consulting Costs

This is the same basic formula used in evaluating other investments where the ROI is traditionally reported as earnings divided by investment.

The BCR and the ROI present the same general information, but from slightly different perspectives. An example will illustrate the use of these formulas: a consulting intervention produces benefits of Rs. 581,000 at a cost of Rs. 229,000. Therefore, the benefit-cost ratio is:

Rs. 581,000

BCR = ______ = 2.54 (2.5:1)Rs. 229,000

As this calculation shows, for every Rs.1 invested, Rs.2.50 in benefits are returned. In this example, net benefits are Rs.581,000 - Rs.229,000 = Rs. 352,000. Thus, The ROI is:

Rs.352,000

ROI% = _______ X100 = 154%

Rs.229,000