First, Fire The Consultants!

Table of Contents

FOREWORD AN INVITATION TO BREAK THE HABIT

PART I – DOING THE RIGHT THINGS

STEP #1 THE CASE FOR DISRUPTIVE INNOVATION

STEP #2 THE DISRUPTIVE INNOVATION SYSTEM

STEP #3 THE SUSTAINING INNOVATION SYSTEM

PART II – DOING THINGS RIGHT

STEP #4 LISTENING TO THE VOICE OF THE CUSTOMER

STEP #5 IT’S THE PROCESS, STUPID.

Step #6 PROBLEM IDENTIFICATION

Step #7 PROBLEM UNDERSTANDING & INVESTIGATION (PLUS, COUNTERMEASURES AND FOLLOW-UP)

STEP #8 THE ART OF PROCESS MAPPING

STEP #9 LEAN IN SMALL BUSINESSES

PART III – THE RIGHT LEADERSHIP

STEP #10 THE FIVE TRAITS OF A GREAT LEADER

STEP #11 THE SIX PILLARS OF EMPLOYEE ENGAGEMENT

STEP #12 THE SEVEN DEADLY SINS IN BUSINESS

AFTERWORD CONFESSIONS OF A FORMER CONSULTING COCAINE DEALER

THE AUTHORS

ACKNOWLEDGEMENTS

First, Fire the Consultants!

Our 12 Steps To Kick The Consulting Habit

And Boost Company Profits

By

R.J. Pineiro and Robert H. Wilson

First, Fire the Consultants!

Our 12 Steps To Kick The Consulting Habit

And Boost Company Profits

Copyright © 2019 by Rogelio J. Pineiro and Robert H. Wilson

Published by Auspicious Apparatus Press

with arrangement with the authors

All rights reserved. Produced in the United States of America. No part of this book may be reproduced, or stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without express written permission of the publisher. For information please contact editor@apparatuspress.com

To Our Wives,

Lory Pineiro and Tracey Wilson

FOREWORD

AN INVITATION TO BREAK THE HABIT

By R.J. Pineiro

There is an ugly truth in both the private and public sectors: the need for management to rely on external consultants to solve its organizations’ fundamental problems.

This need has become as addictive as cocaine.

When confronted with late-to-market products, underperforming sales groups, an inefficient factory or distributor, a sluggish supply chain, a money-losing brand, poor quality control, or any other disappointing business result, company leaders have the unhealthy knee-jerk reaction to reach out to an external consulting firm for solutions.

It doesn’t matter if the business is automotive, electronics, shipping, architecture, legal, marketing, construction, publishing, aerospace, services, entertainment, education, telecommunications, or a state, local, or federal agency. If an organization starts to slow down, if it starts to lose market share—or simply isn’t performing like it used to—you, or your boss, or your boss’ boss could be wondering if perhaps there’s someone out there with the solution.

And that usually means finding a consultant.

Now, consultants do have a place in today’s private and public sectors. They can be a beacon to leaders navigating the unfamiliar waters of events that fall outside of a company’s day-to-day operations, such as a merger, an acquisition, or an expansion into a new geography or market. They can even be a coach to a new CEO.

Consultants can also provide companies with market research, best practices benchmarking, and other information to help executives understand how their respective companies rank against others in their industry. On the latter, we would caution that any company or government agency could have access to such research and benchmarks by purchasing a yearly membership with a respected research firm. And, as we will demonstrate later in this book with ample case studies, that may even be unnecessary.

The real problem, however, starts when leaders go beyond a reasonable use of external consulting firms and allow them to become their proxy to address the shortcomings of their operation. Hunting for a larger fee, usually the external consultant baits the client into such extended and, as we will demonstrate, quite unreasonable and oftentimes unnecessary services.

Leaders must consider that the moment they cross that line—the instance they pull in a team of consultants to address the fundamentals of execution in a company—they are signaling to employees that their leadership team doesn’t believe them capable of solving their own problems.

Sporting impressive academic and industrial credentials (and out-of-this-world PowerPoint slides) an external consultant is given the authority to tell employees how to do their job.

We can’t think of a more demoralizing action which blatantly signals to employees that they are incompetent—that they are incapable of performing the work they were hired to do.

Yet it happens every single day in nearly every conceivable industry in the public and private sectors in America and around the world.

What we refer to as the consulting death-spiral goes something like this:

Leader has a problem.

Leader brings in a consultant to act as proxy.

Consultant interviews selected employees to understand the current state of operations and presents leader (who is usually holed up in the executive area) with a problem statement, comparisons against best-in-class firms, as well as potential solutions typically based on that particular consulting firm’s recipe cookbook.

Leader kicks off a company-wide campaign to implement the consultant’s solution. (Note here that the solution is often something already suggested, or very similar in scope, by employees prior to the consultant invasion.)

Workforce rejects solution for one or more reasons, including but not limited to not having participated in the creation of the solution. Rejection can range from highly emotional conflict to passive-aggressive behavior, where employees just wait it out while problems continue to brew. Make no mistake, your employees know this game; they have mastered its elements and timing.

Leader grows frustrated because problems in the trenches remain long after consultants have left the building in spite of such an amazing set of PowerPoint slides detailing the solution and an intricate corporate metric system.

Leader is terminated, moved to another division, or in some bizarre instances, promoted.

New Leader is brought in to solve problem.

New Leader brings in a different consultant.

Oh boy.

Our book argues that the best solutions reside in the heads of the people who are closest to the problems.

Unfortunately, most leadership systems lack the ability to unlock this employee potential. Instead of nurturing the creativity of employees, instead of spending time listening to employees’ ideas—instead of devising solutions together—leaders take the easy way out. They hire external consultants to do this listening and analyzing for them. In the process, they suppress employees’ creativity and willingness to be a part of the solution.

And then leaders wonder why their employees fail to engage.

First, Fire the Consultants! offers a practical, hands-on, play-by-play proven approach to problem solving that any leader can readily apply.

It is divided into three parts:

DOING THE RIGHT THINGS. Which focuses on the "What," the concept of productive innovation in both the disruptive and sustaining threads.

DOING THINGS RIGHT. Which focuses on the "How," the concept of efficiency, effectiveness, and the discipline of execution.

THE RIGHT LEADERSHIP. Which focuses on the "Who, the leadership traits required to enable the What and the How."

The no-nonsense concepts described in our book are quite simple to envision. Their application is straightforward and derived from our combined six decades of running operations and assisting teams, across multiple industries, in improving their efficiency and effectiveness.

The concepts described herein are universal. The theory as well as the examples will speak to any executive, middle manager, and individual contributor in a direct manner designed to connect this proven approach to current operations in any industry.

This book, made of just twelve chapters, our twelve-step program, reveals a clear and cost-effective blueprint to unlock and harness the power of the strongest weapon in a company’s arsenal: its employees.

America is addicted to consulting cocaine.

It’s time to break the habit.

PART I – DOING THE RIGHT THINGS

STEP #1

THE CASE FOR DISRUPTIVE INNOVATION

There is a historical trend illustrating the failure of well-managed companies to stay atop their industries when confronted with disruptive changes, whether market, business, or technology based¹. Such failures have occurred consistently since the onset of the industrial revolution. They are evident in every industry, from transportation, services, and electronics, to communications, banking, agriculture, manufacturing, and energy.

True disruption shakes the fabric of an industry, dramatically changing the players and the landscape (Fig 1a). Recent examples are digital photography, LCD and LED TVs, e-commerce, smart phones, social media, video streaming services, and the Amazon, Apple, and Costco phenomena.

Fig 1a

Such disruptive shifts have resulted and continue to result in the fall of former business giants (Fig 1b)

Fig. 1b

Disruptive shifts can also be found throughout history. For example, the ice-harvesting powerhouses of the 1800s that collapsed with the advent of machine-made ice, or the light bulb triggering the downfall of the gas-light industry, or even the tiny transistor which slayed the vacuum tube giants². And in more recent history, even chip giant Intel Corporation was disrupted by companies who caught the wave of smart phones and tablets³.

In each case, leaders of the powerhouses of the day chose to invest in their sustaining businesses rather than embrace the incoming wave of disruption. At Intel, for example, the Santa Clara, California, company stuck with its legacy Personal Computer business thinking smart phones and tablets would be just a fad.

Oops.

However, there have been some established corporations who were able to thrive following a disruptive attack.

As depicted in Fig. 1c, when IBM’s mainframe business was disrupted by the minicomputers in the 1970s, it set up a separate business unit in Rochester, Minnesota, to tackle the minis. Several years later, when the thriving minis were disrupted by Apple’s personal computer, IBM did it again, creating an entirely new business unit in Boca Raton, Florida.⁴

Fig. 1c

General Electric also applied the same principle when dealing with disruptive attacks by either setting up or acquiring a new business unit, as was the case with its commitment to the CT Scan project⁵. (Fig. 1d)

Fig. 1d

In no case did IBM or GE attempt to transform an existing business unit to ride the disruptive change wave. Both companies were two of the major electronic players from the 60s and 70s that used this strategy, and they’re among the few who survived.

It can be argued that even those business transformations at IBM and GE were reactionary in nature. Their leadership teams displayed courage, vision, and nimbleness to drive very difficult business changes in order to protect their futures.

This chapter focuses on an even more difficult concept: being proactive and consistent about investing in disruptive innovation while operating under the extreme tactical pressures of your mainstream business. The goal is to increase the number of future disruptions coming from inside your own company, not from outside competition.

Clayton Christensen’s The Innovator’s Dilemma and its companion book, The Innovator’s Solution, articulate the difficulties incumbent market leaders face when trying to allocate significant and consistent funding to areas that clearly do not impact their roadmaps, existing customers, and sales channels.

Successful companies depend on their existing customers to drive the goals of the sustaining business. All best practices in business teach managers to talk to and listen to their customers. As a result, the sustaining business will starve any support for disruptive innovation. The small disruptive and emerging markets, technologies, and business models do not solve the growth needs of well-managed large companies.

Such was the case with disruptive innovations like machine-made ice and the automobile in the 1800s, the airplane at the turn of the 20th century, the transistor in the 1950s, minicomputers in the 1960s, the personal computers in the 1970s, LCD screens in the 1980s, smart phones in the 1990s, and the iPad and video streaming in the 2000s.

In addition, disruptive innovation return on investment (ROI) is difficult, if not impossible, to estimate because non-existing markets can’t be analyzed.

Extensive research conducted by Harvard Professors Charles O’Reilly and Michael Tushman have concluded that companies which use Ambidextrous Organizations are nine times more likely to create breakthrough products and processes than those using other organizational structures.⁶ An Ambidextrous Organization is an organization that successfully achieves a funding balance between Exploitation and Exploration (Fig. 1e & 1f)

Fig. 1e

Fig. 1f

Exploitation is defined as any improvement of performance and/or cost of established products, mainstream customers, and markets. Note that a company can be disruptive within the Exploitation cone, but it is still a cost/performance Exploitation of established markets.

Exploration is defined as true disruptive innovation that may start very slowly, initially resulting in a small market with lower-margin opportunities than existing mainstream businesses cannot and do not initially want to compete in...until it is large enough. But by then it is typically too late.

You have been disrupted.

Horse-drawn carriage customers initially rejected the automobile. Train passengers initially rejected the airplane. Vacuum tube giants initially rejected the transistor. Blockbuster executives dismissed Netflix. The real potential of tablets was questioned until the iPad. Intel rejected the idea that smart phones and tablets could threaten its booming Personal Computer business.

What is the next inflection point being rejected today?

What critical inflection point has your own company dismissed in the past year?

An ambidextrous company learns how to achieve that creative and healthy tension between Exploitation and Exploration investments. As shown in Fig. 2a, Apple has managed to achieve balance between Exploitation and Exploration, and they continue to reap the rewards as a result.

Fig. 2a

The Two Threads of Innovation: Exploitation and Exploration

Other companies have also moved in this direction. For example, Proctor & Gamble operates at a steady state of 70/30 split between Exploitation and Exploration funding.⁷ Cisco’s Emergent Technology Group began at 2.8% of R&D spending.⁸

As Figure 2b illustrates, Cisco also adopted a similar Exploitation-Exploration synergy in its business model, primarily as a result of its investments in the ETG.

Fig 2b

It can also be argued that smaller companies invest more R&D dollars in disruptive technologies than the giants. Newcomer Compaq disrupted IBM in the mid-80s, just as newcomer Dell in 1993 disrupted the then established Compaq, which was worth an estimated $7B at the time.⁹

But even the terms Exploration and Exploitation may be insufficient to describe all of the possible combinations of the types of innovation (Disruptive or Sustaining) and the types of market (Existing or New) impacted by the innovation.

Fig. #3 below depicts the relationship between the type of innovation and market segment.

Fig. #3

As Fig. #3 illustrates, there are interesting dynamics at play between the type of innovation and the market it is impacting. Let’s explore each quadrant in detail.

Quadrant 1 – Sustaining Business.

This is where most of the innovation funding takes place: the incremental improvement of an existing product or service.

Whether it is a new car, a new laptop, a new phone or phone service, or a new watch—that new product or service is likely to be incrementally better than the one you purchased a month ago, a year ago, or five years ago.

Company roadmaps are dominated with such incremental, or sustaining innovation, from airplanes to bicycles; from toys to home improvement products; from the way a company manufactures steel bolts to the tractors harvesting America’s farmlands. There are always incrementally better medical treatments, techniques, and prescription drugs than those available last year. There is a better car model this year than last year. There are improved computers, cinema experiences, and Internet speeds versus one year ago.

This sense of progress month after month, year after year, is the result of the strong focus on sustaining innovation at most corporations. It is the desire to compete and get ahead that fuels this relentless drive of continuous improvement.

QUADRANT #2A – INCREMENTAL EXPLORATION

This is the space where incremental innovations are used to create new markets, not simply to improve existing product offerings or services.

VHS tapes existed for many years before companies like Blockbuster decided to take that innovation and create the movie rental market, later on expanding it to DVDs and video games¹⁰. Likewise, Netflix simply took the Blockbuster concept and combined it with the U.S. Postal Service, plus good logistics, to provide that same rental experience but without the hassles of leaving your home. Netflix later extended that concept by using Internet video streaming technology in addition to DVDs¹¹. And then there is RedBox, which applied the concept of vending machines to the DVD rental business¹². Blockbuster, Netflix, and RedBox are excellent examples of the use of existing technologies from the sustaining innovation space to create a new market.

The same can be said for companies who are capitalizing on Global Positioning System satellites to take navigation to a new level by bringing this technology to cars, phones, and tablets.¹³ These technologies are not disruptive, but their combination does create new marketing opportunities, thus elevating them to the next quadrant.

QUADRANT 2B – DISRUPTIVE EXPLOITATION

This is the space where a breakthrough technology or business model is targeted at grabbing existing market share from the competition by being disruptive within the established competing marketplace.

There are several examples to consider. One example is the hybrid and the electric cars. The Toyota Prius, the Nissan Leaf, the Chevy Spark, and Tesla fall into this category, as does Teflon and digital photography. The Dell Direct Buy model is an example of a revolutionary business model which took away enormous market share from the competition¹⁴. Another example is Pixar Entertainment, revolutionizing digital imaging technology on the silver screen. BestBuy improved the delivery of consumer electronics to the masses through an intricate system of logistics that forced its long-time adversary, Circuit City, into bankruptcy.¹⁵ The same can be said of Target and Wal-Mart over Kmart.

QUADRANT 3 – DISRUPTIVE EXPLORATION.

This quadrant is reserved for true disruption as defined at the beginning of the chapter: true disruption shakes the fabric of an industry, dramatically changing the players and the landscape.

Some notable examples are electricity, the automobile, the airplane, and refrigeration. Apple gets the most recent crown in this space by introducing the portable music solution that was the iPod and iTunes, by redefining the mobile phone with the iPhone and App Store combo, and finally by unleashing the power of tablets with the iPad and the App Store as a solution.¹⁶

Note that in each case, the big bang on each new offering isn’t just the hardware but the entire solution. The iPod by itself was not Disruptive Exploration material because music players had been around for years. The difference is that Apple envisioned iTunes to fill the vacuum created after the government shut down music-piracy sites such as Napster, launching not just a great interface for downloading music at the magical price of 99 cents per song, but combining it with a portable player sporting an intuitive user interface. Apple did it again with the iPhone and the iPad, combining hardware with an amazing software stack to allow each user full customization of his or her unit via the App Store, which took the iTunes concept to the software application world. Never before could users legally purchase software applications for as little as 99 cents.

Starbucks belongs in this quadrant as well for having revolutionized the way people drink coffee, transitioning it from a simple cup to a complete user experience.¹⁷ Facebook revolutionized social media just as steamships revolutionized transportation in the 1800s. And, of course, Amazon, eBay, and Craigslist created commerce via the Internet.

A Harvard Business Review article once claimed that the creative tension between Exploitation and Exploration falls squarely in the hands of the Ambidextrous CEO.¹⁸ It declares that, Great leaders navigate the tension between disruption and core products from the C-suite. They don’t leave the battle between Exploitation and Exploration funding to their managers.

Part of the reason why this battle belongs in the hands of the CEO has to do with the higher risk associated with Exploration projects compared to the safer and more predictable Exploitation projects. The Exploration projects sometimes require multiple years to develop and grow before they are ready for prime time, and therefore become targets for termination by the pressures in the Exploitation business.

A good example of this is Apple. We showed in Fig. #2a the great products that this company has produced in recent times, but one must remember two other Apple products that weren’t successful in the market: the Lisa computer in the early 1980s and the Newton tablet computer a decade later. While they were both great technical innovations of their time, they were commercial failures.¹⁹

We could argue, however, that Apple had to go through those learning cycles in order to arrive at their commercially successful iPad and MacBook family of products.

This brings forward another reason why leaders often tend to shy away from being the disruptor: the challenges that first movers have had in history to turn a disruptive innovation into a commercial success in a reasonable timeframe.

While first movers certainly have the opportunity to monopolize markets, at least for a while, they can also be faced with enormous challenges if their invention is not ready to be adopted by the masses. For example, when Kodak launched the first digital camera in the early 70s, it cost