Comments by Gordon Perchthold

As outlined in my article in the Ivey Business Journal, for too long Canadian business leaders have simply been 'order takers' for digging, pumping, and farming minerals, fuels, and foods. Being next to a global superpower has had advantages but has also undermined the ability of Canadian business persons to develop the street smarts and operate comfortably with ambiguity. Instead, Canadian businesses have been overly coddled by federal and interprovincial regulations creating a protective bubble. Canadians have demonstrated an ability to be innovative but its business leaders fail to sustain performance internationally – they tend to under-invest or sell out (compare Australia’s BHP to Canada’s Alcan, Dofasco, or Stelco). Switzerland, Sweden, The Netherlands, Australia are respectfully one quarter, one third, one half, and two thirds the population size of Canada yet all have numerous multinationals that have established and sustained competitive relevancy in Asia. Canada has perhaps two multinationals - its banks are immaterial in Asia. Australia’s service exports to Asia alone are greater than Canada’s entire trade exports to Asia. It is not size that matters but instead the drive, perseverance, and willingness to take risks. Canadian businesses have an immense untapped natural resource with over 11 percent of its population being of Asian descent. Coupled with almost 300,000 Canadian passport holders in Hong Kong alone, Canadian businesses have an attractive human resources pipeline that understands Asia. Canadian business leaders need to spend less time at their cottages in the summer, and hibernating in their insulated homes and underground cities in the winter, and venture forth into the competitive wilds and reality in Asia. What ever happened to those Canadian voyageurs?

Steve Cooke's comment hits the nail on the head. Board committees provide governance over what has happened, not what will transpire. The clearest evidence of this is that there is no committee or oversight over the use of management consultants who most frequently are used by the CEO to help set the strategic direction and further his/her strategic objectives. Company spend tens to hundreds of millions of dollars on consultants but there are rarely does the board known how much is being spent on each of the top five consulting firms across the enterprise (so it is not managed). There rarely are policies in place to ensure that: there are no conflict of interests in who is hired (e.g. a executive who is a former consultants bringing in their former firm without following a selection process); the consultants are being explicitly managed by the company against a defined scope to achieve specific business outcomes rather than the company being managed by the client; consultants are paid on the basis of business outcomes realized rather than input applied (time and materials basis); that an independent review is undertaken at the completion of a consultant's project verifying that the value promised by the business case or the consultant's proposal were actually delivered. To illustrate the last point, during October both the UK National Audit Office and the Ontario Audit Office both released reports that highlighted their governments poorly manage their consultants and are not getting the value from consultants that they should. This is one area where the management practices of the private sector is behind those of the public sector - undertaking independent reviews of consulting projects. Companies rarely know what value was actually delivered by their use of consultants as boards do not require it despite all the sums being spent on them. If boards applied more governance to the use of consultants perhaps future outcomes would be more positive.

Gordon Perchthold
Author, Extract Value From Consultants

The vast majority of Western multinationals fail to develop as strong a competitive position and revenue generation capability as they have in their home region. Of course, AIA has a different history for although becoming a U.S. giant in insurance, it sales originated in China in the early 20th Century. It has now come full circle, with management control and decisions now fully vested in Asia without the interference and political disfunctionalness from New York. One cannot understate the competitive advantage that this Asia-based decision making capability provides AIA over its other North American and European rivals who treat their Asia operations as foreign outposts without sufficient understanding of the nuances and competitive and operational plays required in the fast growing Asia region.

Gordon Perchthold
Partner, The RFP Company
Author, Extract Value From Consultants

Individuals posessing a sound, reasonable mind grounded in reality know that conflict of interests are pervasive when audit and consulting firms are combined. We should not kid ourselves. The arguement surrounding Chinese Walls was articulated by the investment banking industry as well and we know the reality in that scenario. These 'professional services firms' are focused on driving revenue across service lines, thereby undermining the integrity of audit services. Sarbanes Oxley was enacted at very high cost, with a stipulation of separation, precisely due to these conflict of interests. That audit firms, who initially divested their consulting practices, are rebuilding their consulting services makes a mockery of the spirit of SOX provisions (as well as professional principle of avoiding self-interests when serving clients outside of the U.S. where SOX provision may not apply). Even within consulting firms, there are conflict of interests when consultants are providing advise which promotes the engagement of more resources from that same consulting firm. Conflict of interests also exists when alumni of consulting firms are hired into corporation who then engage or support the marketing efforts of their previous consulting employer (which happens regularly). Given revenue pressures and variability in professional integrity (some professionals do the right thing, but too many do not) one cannot leave it to audit and consulting firms to self-police.

Gordon Perchthold
Author, Extract Value From Consultants

In the 1990's, almost no self-respecting consulting firm would engage in advertising - it was considered beneath them - Partners instead would secure work based on their expertise in a field of analysis. Since then, the rapid increase in consultant headcount in most of the major global consulting firms (tempered moderately with the recent recession) has meant that consulting firms could not 'wait' for clients to call them in. Consulting firms, in order to keep their huge payrolls billable, now need to 'pre-condition' and 'pre-sell' work through large scale advertising, of which "thought leadership" has become just one component in the marketing toolset (along with alumni placement, executive relationship management, and major account control). There is no doubt that some thought leadership does exhibit good thinking - but executives need to recognize what it is - for when such thinking is not drawn from or embedded in the specific individuals you wish to hire for an assignment, but instead is projected out of a central unit of the consulting firm (or in some cases, contracted out to a third party), it is pure and simple advertising. Executives who hire consultants, if they truly which to represent the interests of their company and get the best value out of the consultants they use, need to recognize the tricks of the trade, and focus on the individuals who will do the work, not the Partners who sell it or the marketers who create the veneer of 'thought leadership' around them.

Gordon Perchthold
author of Extract Value From Consultants

Aviva is like many multinationals, chasing the opportunities that its board members and executive management team are most culturally familiar with. As Professor Alan Rugman demonstrates, most MNCs are home regional in their approach to global markets. However, many opportunities are missed because MNCs do not diversify their boards/management teams sufficiently with the breadth of on-the-ground cultural experiences either from well rounded expatriates or foreign executives on the board. With greater diversity, it may not only make distant markets seem more viable but also result in the development of appropriate business models for other regions of the world rather than just replicating ill-fitting home market business models. Poorly fitted operating models is what European and American MNC insurers have been applying to Asia - given the large economic growth potential in Asia, Western insurers need to take a step back and think through their approach to globalization rather than simply being opportunistic. However, do not expect the so call global consulting firms to be much help as they have not been very successful in adapting their own business models to Asia. Tney are like the shoemaker's children, never wearing the shoes (advice) they are selling to others.

Gordon Perchthold
www.MCNGuru.com
author of Extract Value From Consultants

The excessive complexity and organizational inertia of Citigroup of the past decade has been a goldmine for management and IT consulting firms such as McKinsey, Accenture, Deloitte and many others who have tried to make sense of Citi’s directions and pare down its excessive waste. However, it seems ironic that the U.S. operations of Citi, which is the most pervasive user of consultants, has been (on the retail banking side at least, according to the Economist article) the most underperforming country unit relative to the profits generated by its non-U.S. operations. Why have all those consulting dollars not had any impact?

Now that Citigroup is rationalizing its businesses between value-added and non-value-added (probably, with the help of consultants), it should also be doing the same with the consultants that it uses (and set the example for the financial services sector which accounts for 25% of total consulting spend in the U.S.). Citi management must take greater ownership of defining its directions and have its own personnel account for a greater percentage of the headcount on projects rather than relying so extensively on consulting headcount. External consultants who truly do have the expertise and practical experience can provide the necessary independent perspectives to challenge the status quo and instil new ideas but too often the limited expertise of consulting firms is vastly diluted by the non-value-added headcount within those consulting firms. Focused and selective use of consultants consistent with a renewed focus on a selective number of Citi business areas will contribute to a more motivated and successful business operation ‘owned’ by its own management and employees.

Gordon Perchthold
Author of ‘Extract Value From Consultants’

It is indeed an interesting question why Australia's financial institutions have historically not been competitively relevant in Asia as compared to its counterparts from the US, UK, France, Netherlands, Switzerland and to a lesser extent, Canada. QBE has had some success but AMP, CBA, and others have not done Australia proud in its regional backyard. Could it be the Board of Directors of Australian companies being too Australian/Anglo Saxon thus feeling uncomfortable with expansion outside of the U.K. and U.S.? Could it be stock analysts being too inward looking and not comparing the the four big bangs with the broader set of institutions globally and encouraging rather than penalizing Australian banks when they venture abroad? Kudos to Mike Smith for taking ANZ into Asia but hopefully it will be done intelligently. What value-added does ANZ provide over other multinational and domestic institutions? What is the appropriate operating model that embeds some synergies rather than simply replicating infrastructure in each country? What is the template for establishing the processes and systems in each country or will they all be different reflecting the biases of whichever Australian executives are sent to Asia at the time? Will the appropriate management incentives be put in place so that ANZ executives in Asia do the right thing to build capabilities in Asia for a sustainable business rather than just chasing revenue for short-term bonuses. Most MNCs do not adequately consider how to establish and evolve a MNC over time - instead they wing it repeating the mistakes of other MNCs. Hopefully, ANZ will do us proud by putting some thought to their Asia ventures rather than planting flags only to retreat in subsequent years (like AMP, due to poor advise) back home to the safe confines of Australian shores.

Gordon Perchthold
Author, Extract Value From Consultants: How to Hire, Control, and Fire Them

As Mr. Nohria reviews the gap in the HBS curriculum, perhaps he should consider that while almost all business schools teach their students how to be consultants (through case studies and formal courses), pretty well none of them equip their future executives with the knowledge of how to manage and control consultants to deliver to their full potential. It is an uneven playing field as the top students of business school are recruited by consulting firms and every day have practice managing their client while the poor company man/woman, who has day-to-day operational responsibilities, never receives any training in managing consultants despite consultants typically being used to further the strategic and operational objectives of the CEO. Business schools should be equipping their students for the reality of the business world.

Whether it be the legal profession or the consulting profession, the issue with the 'billable hour' is not the cost but instead, what value did it deliver?? Too often, clients, whether of lawyers or consultants, enter open ended arrangements, not necessarily in terms of scope, but in terms of which and how resources will be billed against such scope. Low-value tasks conducted by inexperienced practitioners end up consuming so many hours of billable effort as to often overwhelm the true expertise that was sought after in the first place. While automation may eliminate the billings for a percentage of the menial activity, how is the broader business model going to change so that clients can consistently derive more value (rather than billable hours).

Gordon Perchthold
Author, Extract Value From Consultants

It is ironic that The Economist uses a quote about the "first earnings period of the post-crisis era" from Oliver Wynman to start off its article about how banks are going to regenerate revenues and profits. According to congressional testimony, Oliver Wynman, like many consultants to banks, advised Citibank on CDOs as a new revenue opportunity - which ultimately contributed (among multiple factors) to the financial meltdown. While Citi management are accountable for the decisions being made, to what extent were they reliant on the expertise of its consultants and to what extent are consultants held accountable for their advise? American management and the media seems to be enamoured by its consultants with insufficient governance over selection conflict of interests (often by the consultant's alumni in corporate roles) and lack of policies and procedures for managing and controlling consultants to deliver real sustained value to the business. Financial services account for almost 25% of total market spend on consultants yet it did not help to avoid a financial meltdown. Consultants can deliver value but it is not clear that bank management are actually managing and making consultants accountable for delivering sustained value.

Gordon Perchthold
Author, Extract Value From Consultants

"After the Leak" discusses the challenges of BP post containment. What about "what's next" for the broader American and global economy? Both the financial crisis and the BP oil disaster had the same drivers: (a) greed for short-term profits; (b) increasing risks which were borne by the public rather than the company profiting from them; (c) regulators who were not applying existing regulations but essentially getting into bed with the industry they were supposed to be regulating. The resulting outcome is the same as well, reactive regulations to please the naive electorate. As bad things typical happen in threes, the question is in which industry sector subject to the three drivers stated will the next disaster happen?

Gordon Perchthold
Author, Extract Value From Consultants: How to Hire, Control, and Fire Them

Most acquisitions appear too rich in terms of the acquisiton premium to be paid with the point being accentuated by the fact that most M&A deals fail to realize their value post integration. However, there are a few that potentially can be strategically market changing, and this could have been one of them in the world's most lucrative insurance market for future growth.

The potential deal was a wake-up call for many multinational insurers operating in Asia that it is time to get serious about how to compete in Asia in its own right, rather than Asia simply being a tactical outpost of European and North American multinationals. The strategic thinking, the alignment of the insurance operating model, and the development of human resource capabilities needs to reflect the modern environment of Asia rather than the unbridled market entry of the 20th Century or the old, tired approaches from the home markets of North America or Europe.

Of course, the global consulting firms have been staffing up in Asia to capture the new revenue potential to advise insurers how to operate in Asia (as they have been doing on M&A). Unfortunately, western executives forget that it is more difficult to build a consulting practice in Asia than an insurance company given it takes about 10 years to develop the high intellectual depth of human talent capable of advising/implementing across the pyramid of a consulting organization. An ability to speak your western language is no indicator of capability. The consulting Partners being parachuted to Asia will take time to be effective in the complexity of Asia - and they will make mistakes which their clients will bear the consequences of. Thus, it is very much buyer beware, even across the global brands, when using consultants in Asia to advise insurers how to navigate the competitive landscape in Asia.

Asia now has more opportunity and more competition (dozens of global insurance multinations plus capable local champions) than the mature Western markets. It is a dynamic market with many nuances that shareholders and analysts based in Europe and North American have yet to appreciate. It will be a formidable competitive environment with a reinvigorated AIA with strong brand and history, a strongly positioned (although with less scale than they hoped) Prudential plc, and an more open field for the rest of the multinationals, who have been given a second chance at being more relevant in the region. Which insurance multinationals (Manulife? AXA? Metlife? Allianz? Zurich? ING???) will seriously take up challenge has yet to be determined.

Let the games begin!

Gordon Perchthold
Author of www.ExtractValueFromConsultants.com
Partner, The RFP Company

Dear Sir,

People are being hypocritical when they expect the necessary changes to have occured within one short year across such a broad domain. Whether it is a multinational, national business, small to medium enterprise, or even a community committee, the ability to effect change in the right direction is always a challenge. When you have a key constituent (the Repulicans) representing their own interests rather than the interests of the people they are meant to serve - opposing any type of change irrespective of its validity - it is downright almost impossible. That Obama has achieved as much as he has is surprising. I would challenge any analyst, talk show host, labour leader, business executive or politian to provide an example where they have achieved change on such a large scale with dependencies on outright hostile (perhaps passive agressive) participants. To criticize is much easy to do than to provide constructive alternatives. Let's all get more realistic about the challenges to effect change.