Insane Business Practices - 1

Sometimes my work involves telling organisations the truth about their business, people, processes and systems in a way that has to be made extremely blunt, in order to cut through layers of red tape, years of accreted, splinted and broken processes, and organisation-wide human intransigence.

This is a true story, although the names have been suppressed to avoid embarrassing the subject organisation. You know who you are.

I received a phone call from the specialist service provider selected by my client. “We need to refund them the payment they’ve made directly into our bank account, and get them to pay it again, via their credit card,” the account manager said.

“Why?” I asked, thinking the money must have been erroneously deposited.

“Because they have signed up to pay for a different service via credit card".

Stunned silence... “So, how does that affect the payment they just remitted?” I asked, perplexed.

“I’m not sure, but our finance people tell me they are unable to reconcile the account because it came directly into our bank account not via a credit card. They want to refund the money and then charge the same amount to the client’s credit card”.

Just to recap: So the service provider has a contract with the client to perform services for which they have been paid directly into their bank account, by the client, in full. At the same time, the client has signed a separate contract for additional services, payable (at the service provider’s request) by monthly credit card payments. Now they want to refund the client, charge the same amount to their credit card, which will result in the service provider receiving a lesser amount (due to deduction of the commission on the credit card transaction).

I hope you are following this!

“Are you trying to lose this account?” I asked, “Because the client is going to think your organisation is insane”.

“No, of course not – why would you think that? It’s just the way our Finance Department works”, he said.

“OK, let me talk to the person who runs Finance”, I said.

“They won’t listen to logic. We’ve tried before and it’s no use!”, the account manager wailed.

“It’s OK, I have a solution”, I said. “Is there a sports store nearby?”

“As a matter of fact, yes, there’s a big one just around the corner, why?”

“Because you need to go there to buy a baseball bat.” Silence. “Why?”

“Because if they won’t listen to logic, you need some other way to attract their attention to the pain they are inflicting upon the customer. Plus, the fact they are systematically destroying the trust relationship with the client, that your sales and marketing team has been building so carefully the last few months. See, there's this thing called strategic alignment. Your finance department has absolutely no alignment with your marketing team."

More silence... “Maybe I need to explain the problem to them in those terms, huh?”

“Yes, you do. Best of luck.”

The following day I received another call. Thankfully, sanity had prevailed. The payment was going to be accepted, and somehow, the very clever people in the Finance Department had seen the light and found a way to reconcile the cash payment languishing in their bank account against the receivable in their GL.

Just like normal people would.

What’s the most insane or broken process you have ever experienced in an organisation?

Management Consultants - Help or Hazard?

Just read a wonderful article by Jack Trout on the management consulting profession.

If you have the time to read it all, please do. Otherwise, fast forward to the foot of his article to the anecdote about the Shepherd and the Consultant. Priceless!

OK, Jack’s point is that corporations often bring in management consultants when they don’t know what they want them to do. And that bringing in the large consulting firms rarely has a positive effect.

When you look at the large consulting firm’s business model, there are several observations:

1. Large consulting firms make their money by charging out a lot of people to the client for as many hours as possible at much higher rates than those people are getting paid.
   
   
2. The "longer we take, more you pay' business model of the large consulting firm is obviously in direct conflict with the client’s interests.
   
   
3. The client might really need some help, but that help might never come through in the way the large consulting firm wants to deliver it.
   
   
4. Large consulting firms get hired because 'nobody ever got fired for buying IBM'. If you hired the largest global firm in town and their advice was wrong, how could you have known that would happen? You're in the clear!

It's time for a change. The art of the management consulting engagement is figuring out what kind of consulting work is going to provide value to the client, and explaining to them how that is going to work for them.

The consulting project must be clearly defined and agreed, and the scope and cost fixed in advance.

Of course, either or both can be varied as the project progresses. But the client and the consultant would only vary the scope and the cost by negotiation and agreement. And that makes sense - if something that could not have been known at the start of the project arises, or is uncovered during the consulting work, it may have to be included.

There must be a way to determine the return on investment to the client. How often is that one forgotten?

These are all things that professional members of the Institute of Management Consultants agree to do when they are admitted into the Institute.

What has been your experience working on projects with management consultants ?

The high cost of a cheap hire

A client recently confided that while the GFC had created some problems, they were still growing, and badly needed to fill two new key positions. Catch was, they hadn't budgeted for a Main St recruitment company so they were looking for someone "off Broadway" to do the job cheaply for them.

Their approach reminded me of a project with another large public company who told me they could recruit people for the lowest HR management cost per hire in their industry. When I asked how that was working out for them - there was an awkward moment while they mumbled something about line managers having to clear up their own mess. And the termination costs were met out of payroll, not recruitment, so it didn't matter as much!

When we got to grips with the total cost from cradle to grave throughout the recruitment lifecycle, their lowest-in-category claim was in tatters. Many organisations forget to count the cost of recruitment when things don't go well further down the line.

A survey by the U.S Dept. of Labor Bureau of Labor Statistics revealed the average cost of a bad hire by a company can be anything between 25% and 50% of the staff member's first year's salary. And more than 30% of business failures were caused by employee dishonesty. Some industry estimates put the potential cost of a bad hire as high as three times the employee's annual salary!

Australian organisations searching for a more effective way to screen and select employees - and to benchmark the performance of the people already on board, now have at their disposal an excellent, validated tool: the Integrity and Values Profiling System.

Developed in conjunction with leading employment psychologist and international psychometrics expert Dr. Elizabeth Allworth, the profile is now available as web-delivered, (relatively) low-cost, statistically-validated measurement tool, to support your recruitment processes, and to assist to refine and improve the organisational development of your key operational and management teams.

Click the title link above for more details. And feel free to make comments, for example:

• What has been your experience with a bad hire in your organisation?
• How much has it cost, all up, to fix up the damage done?
• what can you do to avoid a repeat occurrence in the future?