How to compensate for poor grades

Compensating for Poor Grades

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Are you keen on management consulting but have poor grades?

If you have poor university grades, you may face an uphill battle getting an interview at a top consulting firm.

But don’t despair just yet. There are two steps you can take to combat this hurdle.

You can highlight your most impressive work experience in your cover letter.

Additionally, or alternatively, you can selectively highlight a specific subject or year of studies in which you happened to excel.

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]

The death penalty is cruel

I Stand For Mercy

(Source: Virgin.com)

It was very sad to hear about the eight people executed by firing squad by the Indonesian government, including two Australians.

The death penalty is cruel. People who traffic drugs may be desperate, reckless, foolish, greedy or a combination of all of these things, but they are still people.  And killing people is barbaric.

The evidence has shown that the death penalty is ineffective as a deterrent.  Drugs are a problem in many countries, but executing drug mules and distributors misses the broader perspective that drugs are a social problem caused by supply and demand.

The people who traffic drugs don’t control the supply.  They are caught in the middle of a larger game and killing them won’t put an end to the drug trade. It also does nothing to improve public health, educate young people or rehabilitate drug addicts.

#IStandForMercy

Anchoring

Anchoring

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Anchoring is a common psychological effect whereby people tend to rely too heavily on readily available information (the “anchor”) when making decisions involving uncertainty.

To illustrate the point, let me ask you two questions:

  1. Is the population of Argentina greater or less than 80 million?
  2. How many people do you think live in Argentina?

Write down your answers to these two questions, and then continue reading.

Have you written down your answers?

If you are like most people, then you probably have no idea how many people live in Argentina. In order to take a guess, it helps to have some kind of reference point and my first question gave you a clue: Is the population of Argentina greater or less than 80 million?

The population of Argentina is actually around 41 million, about half of the anchor I provided.

How far off were you?

If you are like most people then your guess probably overshot the mark by quite a bit. You couldn’t help but be influenced by the information that I provided, even though the information was arbitrary and extremely inaccurate.

Anchoring is a quirk of human psychology that can be used to entertain first year psychology students, but more importantly it is a common and pervasive cognitive bias that affects the way in which people make decisions and is relevant in many business contexts.

Here are just three (3) examples:

1. Price Negotiations

A sophisticated buyer in a price negotiation will always want the seller to name the first price. By making the seller name her price this sets an anchor, a maximum price from which the buyer can negotiate downwards.

If the seller names an unrealistically high price then the buyer will want to emotionally reject the price, perhaps by exclaiming shock, disgust or pretending to walk away.

The buyer may still be interested in continuing the negotiation but by emotionally rejecting the initial offer the buyer hopes to break the anchor so that negotiations can begin afresh.

2. Sales

I once bought a Helmut Lang sweatshirt retailing for $400, which happened to be on sale for $80.

Up until sitting down to write this article I had always believed that I had scored an incredible bargain, but the reality appears to be quite different.

Retailers use the “recommended retail price” as an anchor. At sporadic intervals they can then offer a far more reasonable “sale price” which draws shoppers to the store in the belief that they are obtaining a bargain.

The sale price may in fact be a bargain, but only in the same sense that my Helmut Lang purchase was a bargain; a reduction in price from an artificially high starting point.

3. Stock Trading

Algorithmic traders can use their knowledge of anchoring to gain a statistical edge in the stock market.

Many traders will use a recent high or low price as an anchor to determine whether prices are “too high” or “too low” and an algorithmic trader can use this fact to develop trading systems that allow her to trade with positive expectation over the longer term.  (For a good book on this subject, get yourself a copy of Way of the Turtle by Curtis M. Faith.)

Conversation with Accenture Australia

AccentureI recently had the chance to correspond with Georgia Hewett who handles Corporate Communications for Accenture in Australia/New Zealand. Georgia was extremely helpful and was kind enough to answer some questions I had about Accenture and its recruitment process.

If you are a student, recent graduate or aspiring consultant looking to land a consulting job in Australia, then this information is likely to be of interest.

Please read my questions and Accenture’s answers below.

Tom: Accenture offers a range of services including Strategy, Digital, Technology and Operations. Are graduates able to gain exposure to more than one service line?

Accenture: Accenture graduates are aligned to one of our businesses upon joining and will work primarily within that area to build their skills and business acumen. However, there are opportunities to work across industries, teams, clients and geographies.

Tom: Accenture’s clients come from all industries worldwide. Are graduates expected to pick an industry specialisation? How quickly are graduates expected to specialise?

Accenture: Graduates are not required to select a specialisation until later in their career when they have had the opportunity to learn more about our clients, understand the needs of the business and determine where they are best suited. This typically happens quite organically as the individual grows within the organisation. Additionally this specialisation may not be specific to an industry but could be related to our technology, strategy, digital or operations business.

Tom: Accenture has offices in more than 200 cities worldwide. In Australia, your offices are located in Brisbane, Canberra, Melbourne, Perth and Sydney. Does Accenture hire graduates for all of its Australian offices? Is it possible for consultants to transfer between offices within Australia or internationally?

Accenture: Accenture hires graduates in all of our Australian offices. There are certainly opportunities for employees to transfer between our offices locally and globally to meet both their personal and professional needs.

Tom: What kind of training and mentoring can graduates expect to receive at Accenture? Is training provided online or does Accenture bring consultants together as part of a regional or global training program?

Accenture: From training courses in our regional training facility in Kuala Lumpur to on-the-job training we offer our graduates a wide range of training and development opportunities. These opportunities are a combination of classroom based specialist training and online resources such as MyLearning – Accenture’s innovative global learning portal which provides access to over 20,000 virtual courses. Finally all graduates will have access to a Career Counsellor who will guide them, check their progress and help them achieve their professional goals.

Tom: How much partner and client contact can junior consultants expect to have at Accenture?

Accenture: Graduates joining Accenture will be immediately placed on a project and will work closely with all members of the client team.

Tom: What is Accenture’s travel model?

Accenture: Accenture’s travel expectations are largely driven by the needs of our clients. If a graduate is placed in a role which requires them to travel they will typically fly out on Monday morning and return to their home location on Friday afternoon.

Tom: Are you still accepting graduate applications for 2015?

Accenture: Applications for 2015 are closed.

Tom: Does Accenture use the case interview in its recruitment process? How many interview rounds are there? What kind of candidates tend to be successful in securing a position with Accenture?

Accenture: Accenture uses the case interview in the Accenture Strategy graduate recruitment process. Our typical recruitment process for graduates includes an initial screen, online assessment, video interview, business interview and a final interview with a Managing Director. Throughout the process we are looking for academically high-performing students who are well-rounded, enthusiastic and hold Australian/New Zealand citizenship or Australian Permanent Resident status. Students can join Accenture from any academic discipline; and we’re particularly keen to recruit graduates from maths, science, engineering and technology backgrounds. All graduates will need a deep passion for consulting, digital and emerging technologies, or be able to demonstrate a real flair for IT, and have good commercial awareness and communication skills.

Tom: What’s the most common mistake that candidates make when applying?

Accenture: Waiting until the last minute to complete the application.

Tom: Many thanks to you Georgia, and to Accenture, for taking the time to answer my questions.

I hope you found the above information about Accenture and its recruitment process useful. If there are other firms that you would like me to interview in future, or specific questions that you would like me to ask, please let me know by sending an email to tom [at] spencertom.com. I look forward to hearing from you.

Filling the Void

Filling the Void

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It is a figure of speech that “empty vessels make the most noise”. And for verbal conversation this would appear to be a good observation.

People who are not thoughtful are likely to say whatever comes to mind since they don’t think to filter good thoughts from bad, obnoxious thoughts from nice ones.

In self defense, these people will often be heard saying “I just like to be honest”.

But honestly though, if your thoughts are not helpful or constructive then you should probably just keep them to yourself. There is really no need for filling the void.

In written communication though, things are a little different.

If you are writing a blog post or a research report and can’t quite find the right words to express your ideas then it will often be helpful to leave a place holder for the missing words [Lorem Ipsum] and then come back later when you’ve had more time to consider what you really wanted to say.

It is often easier to write your ideas down quickly without breaking the flow, and then return to edit your thoughts and perfect the message.

Don’t serve it half baked (or burnt to a crisp). Ship it when it’s good and ready.

Newspapers Don’t Get The Internet

Newspapers Don't Get The Internet

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Yesterday we read an article in The Australian Newspaper entitled “The career advice I wish I had at 25“.

It was an insightful article in which The Australian’s Queensland Editor Shane Rodgers provided thirteen pieces of advice that he wishes he had had back when he was 25 years old.

We were going to link to the article in The Australian, but discovered that although the article can be read when accessed via Facebook it can’t be read if accessed via links on other websites (ironically a version of Shane’s article can be read freely on LinkedIn).

LinkedIn doesn’t charge a subscription fee for its content, but The Australian and many other newspapers do.

This is not only slightly ironic, but clearly demonstrates that newspapers (including mastheads like the New York Times) don’t understand the Internet and are currently in the process of fighting a losing battle online.

If businesses that make their bread and butter by creating and distributing news content are determined to charge for that content while more successful online players like LinkedIn, Facebook and Google are giving content away for free, then it begs an obvious question. How long can we expect traditional news content providers to survive?

As we argued last week, the Internet has fundamentally changed the strategic landscape. We are now living in a connection economy in which content is ubiquitous and cheap (typically free) but connection and attention are valuable and scarce.

By charging a subscription fee for content, The New York Times and The Australian may be ensuring their short term financial survival but they are doing so at a significant long term cost.

Putting a price on content limits subscriber numbers and ensures that these content providers will be unable to participate in the new online business model which revolves are connecting with more readers than ever before, and allowing those readers to connect with each other.

Conversation with IMS Consulting Group

IMS Consutling GroupI recently had the chance to talk with Stephanie Green, Manager of Talent Acquisition for Europe, the Middle East and Africa at IMS Consulting Group.

If you have an interest in life sciences, either through your studies or previous work experience, then IMS Consulting Group could be the perfect place to enhance and grow your career.

Please read the edited transcript of my chat with Steph below.

Tom: IMS Consulting Group was ranked in the Vault Consulting 50 and focuses exclusively on life sciences offering a range of services. Where would you say the firm does the bulk of its work?

Steph: Our work is split across all the centres of excellence: Brand & Commercial Strategy, Pricing & Market Access, Strategy & Portfolio Analysis and Competitive Intelligence.

Tom: Are graduates able to gain exposure to more than one service line?

Steph: Graduates come in at Analyst level and fresh PhD students come in at Associate Consultant level. Analysts, Associate Consultants and Consultants work across the four centres of excellence. Senior Consultants would start specialising in one of the four.

Tom: I understand that IMS Consulting Group has 19 offices globally including one in London and one in Cambridge. Which offices are currently hiring?

Steph: IMS Consulting Group is part of IMS Health and is normally located where IMS Health has its offices. We are hiring graduates in all offices.

Tom: Is it possible for consultants to transfer between offices?

Steph: Transfers are possible if consultants have been at the firm for a while and proven themselves. This is a structured program where consultants undertake short term assignments based in other offices.

Tom: What kind of training and mentoring can graduates expect to receive at IMS Consulting Group?

Steph: There are 2 weeks of onboarding training, including networking drinks and dinner. This is held in September and February each year.

Throughout the year there are training days, “lunch and learns” and our in-house learning and development team organise many training sessions for you to pick and choose from. Consultants [based in Europe] usually come to London for the training.

Tom: How much partner and client contact can junior consultants expect to have at IMS Consulting Group?

Steph: Analysts and Associate Consultants work on real projects from their first day. The consulting career progression includes a number of levels: analysts are the first level, then associate consultant, consultant, senior consultant, engagement manager and Principal / Senior Principal. Project teams are made up of people from each level, and each person would be assigned a coach.

Tom: Do IMS consultants work remotely or on site with the client?

Steph: It’s a mixture depending on the project. You are likely to visit clients for client meetings and workshops. Consultants normally hot desk in the London office. Analysts and Associate Consultants will do a lot of work over the phone and via conference calls.

Tom: For ambitious students and recent graduates out there, what would you say distinguishes IMS Consulting Group from other management consulting firms?

Steph: All projects are niche and focused on life sciences. If you come from a sciences background and want to keep that but work in a commercial environment then IMS Consulting Group is the perfect place for you. A lot of our hires have life sciences, neuroscience, biology, pharmacology or chemistry degrees. We also have graduates with business/economics degrees or Masters in Health Economics.

Tom: How many graduates is IMS Consulting Group looking to hire for 2015?

Steph: It varies each year. For the 2015 intake we have hired about 25. Plus internship opportunities over the summer.

Tom: Are you still accepting applications for 2015?

Steph: Not for 2015. We just finished this week, and will be re-advertising starting from September for 2016.

Tom: Does IMS Consulting Group use the case interview as part of its recruitment process? How many interview rounds are there?

Steph: We have one competency interview and two case interviews at the assessment centre. The first round would be telephone or a speed interview.

Tom: What’s a speed interview?

Steph: Speed interviewing involves coming to our offices in London. Twenty five candidates rotate around different tables and complete different activities. This is followed by networking drinks afterwards.

Tom: What would you say is the most common mistake that candidates make when applying, in particular during the speed interviews?

Steph: Not talking or saying much at the speed interview. For brainteasers and numerical questions the biggest mistake is getting the numbers way off the mark or making crazy assumptions.

Tom: In terms of career progression, how are consultants reviewed and promoted?

Steph: All employees set objectives at the start of the year with their Coach and then you have mid and end of year reviews with your coach along with feedback from other colleagues. This review would affect a consultant’s end of year bonus.

Tom: Your consultants earn an end of year bonus? How big are the bonuses?

Steph: Bonus is a percentage of base salary and is applicable for Analysts upwards. Bonus salaries are competitive with the market.

Tom: What exit opportunities have consultants from IMS Consulting Group pursued in the past?

Steph: People tend to go to work in industry, for example a job in the pharmaceutical industry.

Tom: Is there any additional information that you think would be helpful for candidates but which we haven’t covered?

Steph: We have lots of applications to screen and lots of people are being very generic [in their application]. The firm is looking for an interest in healthcare and life sciences. This needs to stand out in the CV as well as including extra curriculars.

Tom: Do extra curricular activities need to be related to life sciences?

Steph: These don’t have to relate to life sciences, they could be sporting.

Tom: You said that an interest in life sciences needs to stand out in the CV. I assume you require applicants to provide a CV and a cover letter?

Steph: Yes, we require both, but the CV is the first thing that we look at. The CV should be stand alone and make it clear why you are a strong candidate and have an interest in life sciences. Some candidates include a short purpose at the top of the CV or include their work experience in the life sciences sector.

Tom: Steph, thanks for your time! I believe this information will be most helpful for candidates who are assessing their consulting career options.

CV and Cover Letter Basics

CV and Cover Letter

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Top consulting firms receive thousands of applications per year, and so your cover letter and CV form a crucial first step in your application that will determine whether you secure a first round interview.

You need to tailor your cover letter and CV for each application and highlight your most impressive and relevant credentials and experience to demonstrate that you are the right person for the job.

The recruiter will be looking for evidence of:

  1. Strong academic performance
  2. Ability to work in teams
  3. Leadership experience
  4. Noteworthy achievements
  5. Differentiating factors – academic or extra-curricular achievements
  6. Relevant technical skills, e.g. software, finance, economics

For more information on preparing your cover letter and CV, please download our dedicated guidebooks:

  1. How to Create a Winning Résumé
  2. How to Create a Killer Cover Letter

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]

Surveying the Business Landscape

Before taking decisive action, it may be a good idea to assess the lay of the land

Business Landscape

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According to Sun Tzu, the quality of decision “is like the well-timed swoop of a falcon which enables it to strike and destroy its victim.”

And much like a circling falcon overhead, a company needs to take a 10,000 foot view of the business landscape before it can take swift and decisive action.

The framework outlined in this post provides a framework that business leaders can follow to examine the business situation.

1. Relevance

Having a framework to assess the business situation is relevant to any company in the context of making strategic decisions and, what’s more, every important decision that a company makes will in some way be strategic.

In the pursuit of growth, should a company enter a new market, develop a new product, launch a start-up, form a joint venture, or acquire a competitor? In a bid to cut costs, should a company reduce headcount, outsource production to a supplier, or utilize lower cost distribution channels? How should the company position itself within its industry?

In order to find answers to these key strategic questions, a company and its executives need to develop a clear understanding of the business landscape, and to do this it will help to have a simple framework to structure the exploration process.

2. Importance

Failure to properly assess and understand the business landscape can have billion dollar implications and affect the course of an entire industry.

Welcome IBM SeriouslyThe story that best illustrates this point was IBM’s secret project in 1980 to create the IBM Personal Computer.

As part of the project, IBM made three surprising decisions:

  1. It allowed Microsoft the right to produce the operating system software and market it separately from the IBM PC;
  2. It chose to purchase the microprocessor from Intel; and
  3. It opted to make the IBM PC an “open architecture” product, publishing technical guides to the circuit designs and software source code.

These three strategic decisions helped to shift market power in the PC industry away from IBM and towards Microsoft and Intel.

Although the PC market grew quickly, companies like Compaq, Dell and HP soon reverse engineered the IBM PC and, since IBM had made it an open architecture product, they were able to sell a large number of clones, known as IBM compatibles, which increased the intensity of competition in the PC industry.

Meanwhile, booming PC sales from multiple vendors provided Microsoft and Intel with a lucrative and rapidly growing market for software and chips.

Despite the fact that IBM set the technology standard in the personal computer industry, it failed to capture the lion’s share of industry profits. It helped Microsoft and Intel establish lucrative markets for themselves, but was not itself able to compete in these markets due to high barriers to entry including technology patents, the Experience Curve effect and economies of scale.

IBM’s three strategic missteps were a blessing for Microsoft and Intel, which now have a combined market cap of over US$555 billion, but are an enduring sore point for IBM, which decided to jettison its PC business to Lenovo in 2005 for a mere $1.8 billion.

The story of the IBM PC is a cautionary tale. Companies that fail to assess the business landscape before taking action may find themselves in an untenable position.

3. Surveying the Business Landscape

A popular way to examine the competitive intensity and attractiveness of an industry is to use Porter’s Five Forces, a technique which was first outlined by HBS Professor Michael Porter in his 1979 book Competitive Strategy.

While the Porter’s five forces remains a useful reference point, and we incorporate its core elements into our framework, there is a bit of a problem with using it directly to assess the business landscape.

The key issue is that Porter’s Five Forces doesn’t consider the market power and unique characteristics of the company from whose perspective we are supposed to be analyzing the industry. For example, an industry may appear attractive from the perspective of a cash rich tech savy player like Google but appear quite unattractive to pretty much everyone else.

Through their strategies, firms have the ability to change industry structure, and so the business landscape will always need to be assessed relative to the market power of a particular organisation.

In order to assess the business landscape, we will examine the three entities whose market power, strategies and actions will, in any industry, have the capacity to affect a firm’s profitability: the customer, the competition and the company itself.

3.1 Understanding the Customer

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” ~ Sam Walton, founder of Walmart

A good first step in assessing the business landscape is to examine the customer, the people whose problems the industry is trying to solve.

Below we outline eleven (11) factors to consider when examining the customer.

1. Identifying the customer

In general terms, who is the customer?

In trying to identify the customer, remember that the person who makes the purchase decision, the person who pays (the customer), and the end user (the consumer) may all be different people. For example, a doctor may prescribe medicine that will be used by a patient (the consumer) and paid for by an insurance company (the customer).

2. Placing customers into meaningful buckets

Dividing customers into meaningful groups can make it easier to understand their specific needs and preferences.

For example, it may make sense to group customers by:

  1. Age group
  2. Gender
  3. Income level
  4. Employment status
  5. Distribution channel
  6. Region
  7. Product preference
  8. New versus existing customers
  9. Large versus small customers

3. Size

How big is the market? How big is each customer segment? How many customers are there and what is the dollar value of those customers?

4. Growth

How fast is the market growing? What is the growth rate of each customer segment?

5. Industry Life Cycle

Where is the industry in its life cycle: early stage, growth, maturity or decline?

6. Customer Preferences

What do customers want? Do different customer segments want different things? Are the needs and preferences of customers changing over time?

7. Willingness to Pay

How much is each customer segment willing to pay?

How price sensitive is each customer segment? For example, students will normally be price sensitive, which means that offering student discounts can often increase quantity sold by enough to boost total revenues.

8. Concentration

What is the concentration of customers in the market relative to the concentration of firms? Is there a small handful of customers who are so large that they cannot be ignored?

If the market is dominated by a small number of large and powerful customers then it may be necessary to either play by their rules or search for a more favorable market (see Walmart Effect).

9. Recent and impending changes

Have there been any recent changes in the industry? Are there any impending changes? For example, M&A activity, new entrants, new substitutes, new technology, or changes in government policy.

10. Industry Drivers

What drives the industry: brand, product quality, scale of operations, or technology?

11. Distribution

What is the best way to reach customers (mail order, online store, factory outlet, retail store, supermarket, department store or network marketing)?

Does each customer segment have a preferred distribution channel? For example, younger customers may prefer purchasing online whereas older customers may prefer bricks and mortar retail outlets.

3.2 Understanding the Competition

“Competition is not only the basis of protection to the consumer, but is the incentive to progress.” ~ Herbert Hoover, 31st President of the United States

In order to understand the business landscape it is also important to understand the competition, and this can be done by examining horizontal competition (competition between firms at the same stage of production) and vertical competition (competition from within the supply chain).

3.2.1 Horizontal Competition

Competition can come from firms within the industry who are offering similar solutions to the same group of customers (e.g. Pepsi and Coca Cola).

Competition can also come from firms in other industries who produce substitutes. Substitutes may have quite different characteristics (for example, petroleum and natural gas) but they represent a form of indirect competition because consumers can use them in place of one another (at least in some circumstances). For example, petroleum and natural gas might both be used to produce heat and energy.

Below we outline ten (10) factors to consider when examining the competition.

1. Identifying direct competitors

Who are the company’s major competitors? Taking Cadbury as an example, some of its major competitors might include Lindt, Ferrero, Nestlé, Hershey’s and Mars. What products and services do they offer?

2. Substitutes

Who are the company’s indirect competitors? That is, which firms are producing substitutes?

To identify these, it helps to take a broader view of what the company offers. For example, Cadbury sells chocolate, but more broadly it might be thought of as a snack food company, and so indirect competitors might include companies like Lays, Cheetos and Doritos.

3. Placing the competition into meaningful buckets

Is it possible to group competitors in a meaningful way? The competition might be categorized by distribution channel, region, product line, or customer segment. For example, the FOX Broadcasting Company might segment the competition by region. In America, some of its major competitors include PBS, NBC, CBS and ABC. While in Australia, competitors include Channel 7, 9 and 10 as well as ABC and SBS.

4. Size and Concentration

What is the sales volume and market share of major competitors?

What is the concentration of competitors in the industry? That is, are there lots of small competitors (a low concentration industry) or a few dominant players (high concentration industry)? Examples of high concentration industries include oil, tobacco and soft drinks. Examples of low concentration industries include wheat and corn.

5. Performance

What is the historical performance of the competition? Relevant indicators of performance might include profit margins, net income, and return on investment.

6. Competitive Advantage

What is the competition good at? How sustainable are these advantages?

What are their weaknesses? How easily might these weaknesses be exploited?

7. Competitive Strategy

What competitive strategy is the competition pursuing? Do they produce products that are low cost or differentiated? Which market segments do they target?

What is the competition’s pricing strategy, distribution strategy and growth strategy? (see Product/Market Expansion Matrix).

8. Competitive Balance

Is the industry balanced in the sense that competitors have clear and sustainable positions within the industry? This might be the case where firms have taken efforts to differentiate themselves by providing customers with different value propositions which appeal to different consumer preferences.

On the one hand, the industry may be unbalanced where multiple competitors are trying to become the low cost firm within the industry resulting in aggressive price competition and the destruction of industry profitability. Similarly, the industry may be unbalanced by a distant follower who is making aggressive moves in an attempt to improve its position, for example by introducing low priced unbranded generic products.

9. Competitive Response

How will the competition respond to the company’s actions?

10. Barriers to entry

The threat posed by potential competition depends on the level of barriers to entry. Barriers to entry make it more difficult for potential competitors to enter, and allow existing firms to maintain higher prices than would otherwise be possible.

3.2.2 Vertical Competition

Competition includes not just other firms operating at the same stage of production but any entities that have the potential to solve all or part of the end user’s problem, and thereby compete for a share of industry profits. This naturally includes vertical competition from suppliers and customers within the supply chain.

It is important and somewhat interesting to realise that suppliers and customers can represent a form of competition. Customers and suppliers within the supply chain that have more bargaining power will be able to extract a larger share of industry profits.

IBM learned about supplier bargaining power the hard way when it helped Microsoft and Intel gain virtual monopolies over the supply of key components for the personal computer.

Factors that will affect the bargaining power of suppliers (e.g. Microsoft and Intel) include:

  1. The number of available suppliers and the strength of competition between them;
  2. Whether suppliers produce homogenous or differentiated products;
  3. The brand recognition of a supplier and its products;
  4. The importance of sales volume to the supplier;
  5. The cost to the firm of switching suppliers;
  6. The availability of substitutes; and
  7. The threat of forward integration by the supplier relative to the threat of backward integration by firms in the industry.

Amazon.com has gained substantial customer bargaining power in the publishing industry due to the huge volume of books that it is able to sell and distribute.

Factors that will affect the bargaining power of customers (e.g. Amazon) include:

  1. The number of customers;
  2. The volume a customer demands relative to a firm’s total output;
  3. The availability of substitutes;
  4. The cost to the customer of switching products or firms;
  5. The availability of product comparison information; and
  6. The threat of backward integration by the customer relative to the threat of forwards integration by firms in the industry.

3.2.3 Competitive Intensity

Below we outline twelve (12) factors that will influence the strength of competition within an industry:

  1. Number of firms: The more firms there are in an industry the stronger will be the competitive rivalry since there will be more firms competing to serve the same number of customers;
  2. Market growth: If the market growth rate slows then this will increase competition since firms will need to compete more aggressively to gain new customers;
  3. Economies of scale: If firms in the industry have relatively high fixed costs and low variable costs then this will lead to more intense rivalry as firms compete to gain market share;
  4. Excess capacity: If the industry experiences cyclical demand then this may result in sporadic industry wide excess capacity leading to bouts of intense price competition;
  5. Switching costs: If customers have low switching costs, then this will intensify competition as firms compete to retain existing customers and steal customers from the competition;
  6. Product differentiation: If firms in an industry produce homogeneous products, then firms will be forced to compete on price. Firms can achieve product differentiation in various ways including improving product quality, features, branding and availability;
  7. Instability: Diversity of competition (for example, firms from different countries or cultures) may reduce predictability within a market and lead firms to compete more aggressively;
  8. Entry barriers: Low entry barriers will allow more competitors to enter the market resulting in more intense competitive rivalry (see ‘Barriers to entry‘);
  9. Exit barriers: High exit barriers will increase competition because firms that might otherwise exit an industry are forced to stay and compete. A common exit barrier is where a firm has highly specialized equipment that it cannot sell or use for any other purpose;
  10. Industry shakeout: Where a growing market induces a large number of firms to enter, a point is likely to be reached where the industry becomes crowded. When market growth slows, a period of intense competition, price wars and company failures is likely to ensue;
  11. Substitutes: If the number of substitutes increases, the relative price performance of substitutes improve, the prices of substitutes decrease, or customer willingness to substitute increases, then this will increase the intensity of rivalry within an industry as firms compete more intensely to retain customers; and
  12. Bargaining power of suppliers and customers: If suppliers and customers have more bargaining power then they will be able to extract a larger share of industry profits. This will reduce the profitability of firms in the industry, which may result in more intense competition, industry consolidation, vertical integration, and company failures.

3.3 Understanding the Company

“Know your enemy and know yourself and you can fight a hundred battles without disaster.” ~ Sun Tzu

In assessing the business landscape, it is not enough simply to understand the customer and the competition, it is also important to understand the organisation from whose perspective we are analyzing the industry.

Below we outline ten (10) factors to consider when examining the company.

1. Performance

What is the historical performance of the company? How does this compare to the competition? If profits have declined, what is the source of the decrease? Is it a cause for concern? (see the Profitability Framework).

2. Competitive Advantage

What are the company’s capabilities and key strengths? How sustainable are these advantages? What are its weaknesses and can these be remedied?

3. Competitive Strategy

What is the company’s competitive strategy? Does the company focus on reducing costs or on differentiating itself in a way that customers value? Which market segments does the company target? (see Porter’s Generic Strategies).

4. Products

What does the company offer and how does this benefit customers?

Is the product a commodity or differentiated?

How does the company’s offering compare with the competition?

Where does the product fall within its product lifecycle? (see Product Life Cycle Model)

What is bundled with the product, for example, customer service, warranty insurance or more hard disk space? Are there opportunities to bundle or unbundle the product in order to increase sales?

5. Finances

If the company is considering a certain course of action, does it have sufficient funds available to undertake the project? Financing may be sourced from internal cash reserves, bank loans, shareholder loans, bond issues or sale of shares.

How many units will need to be sold in order to recover the total project cost? Is there sufficient market demand?

6. Cost Structure

It may be obvious from a company’s profit and loss statement whether it is a high cost or a low cost operator, however aggregate figures can often hide important details.

In order to understand a company’s cost structure, it will help to break each business unit down into the collection of activities that are performed to design, produce, market, deliver and support its product. The way each activity is performed combined with its economics will determine a firm’s relative cost structure within its industry. This technique for examining a company’s cost structure is an application of Value Chain Analysis.

7. Organisational Cohesiveness

Understanding a firm’s inner workings is important since competitive strategies can fail if they conflict with a firm’s culture, systems and general way of doing business. The organisational aspects of a firm can be examined using the Seven S Framework.

8. Marketing

How do the company communicate with customers, and how do customers perceive the company and its products?

9. Distribution Channels

What distribution channels does the company use to reach customers? Are there other distribution channels that are more cost effective or which are preferred by customers?

10. Customer Service

Are employees empowered to solve problems and delight individual customers?

[For more information on consulting concepts and frameworks, please download “The Little Blue Consulting Handbook“.]

The Connection Economy

Connection Economy

(Source: Flickr)

Traditional strategic thinking, the kind championed by HBS Prof Mikey Porter, says that real economic value is only created when a company can sell a product or service to customers at a price that exceeds the cost of producing it.

In other words, companies are entities that sell products or services, and strategic thinking is all about figuring out how to do this profitably. End of story.

This view seems to make sense, and in a world before the Internet it definitely made a lot of sense.

The problem though is that business on the Internet is not primarily about selling products and services.

The Internet allows people to connect with each other at pretty much zero cost, and successful Internet-based companies like LinkedIn, Facebook and eBay have accepted this reality.

By building business models that enable people to connect around a common interest or shared purpose in a way that can be scaled these Internet-based companies have produced significant economic value in a way that is often sustained not by the sale of products or services but through advertising, commissions, memberships and distribution fees.

The Internet enables connection, and an economy where people produce economic value by building markets and communities.

For tech founders monetisation is often a second-order problem, and while part of the solution may involve selling products and services, this will not always and not necessarily be the case.

Part of good strategic thinking involves accepting the world as you find it, and adapting your approach.

Is your business connecting with people, or helping people connect with each other?

Should it be?

Consulting Firms in Australia, 2015

Consulting Firms in Australia

(Source: Flickr)

Applying for consulting roles in Australia, or thinking about it?

We have updated our list of Australian consulting firms, which includes a list of firms along with information such as firm background, services, sectors, office locations, and links to the most relevant careers websites.

It might come in handy.

To download the document, click here (it’s free).

Building Consulting Relationships

Building Consulting Relationships

(Source: Flickr)

This post considers how to build consulting relationships.

Some people appear to believe that the goal of attending networking events is to collect as many business cards as possible.

This was always the wrong approach, however in a world with LinkedIn, it is also absurd since a person’s business card will contain much less information than their Linkedin profile.

Networking is about building relationships not about the size of your Rolodex; knowing one person who can help you is better than having 1,000 LinkedIn connections.

When it comes to networking, here are five (5) ideas to bear in mind:

  1. First impressions count: Good grooming will not necessarily secure you a job, but poor grooming can scuttle your chances. You will be judged on your appearance. It’s not fair, it’s not nice, and it may sound like high school all over again, but you need to accept reality and play the game. Invest in one quality business suit that you can wear throughout the recruitment process.
  2. Provide value early: Networking is about building relationships, and the good way to build relationships is to give something of value up front. If you are a practicing consultant then this might include sharing industry knowledge or making helpful introductions. Unfortunately, if you are a student talking to an HR person at a careers event then you are unlikely to have any such value to offer. However, luckily, nobody ever said that you need to provide value of a commercial nature. If you’re a naturally funny person, feel free to tell a tasteful joke.
  3. Find common ground: As an ambitious aspiring consultant, you may be tempted to barrage an HR person or consultant with a shopping list of questions. Don’t do it. You are there to build relationships, not to tick off a check list. Take an interest in the person you are talking to, ask them about their interests and experiences, and see whether you can establish common ground.
  4. Ask burning questions: Research the firm and its recruitment process prior to attending a careers event in order to avoid asking obvious questions. If you still have some burning questions, feel free to ask them.
  5. Follow up: If you had a good conversation with an HR person or consultant, it is a nice courtesy to send a short follow up email. In your email, re-introduce yourself, remind them what you talked about and thank them for their time. Below is a short sample email to give you an idea of what is required:

Dear Sally,

This is Joe Simpson, we met yesterday at Bain’s careers evening held at the Randolph Hotel in Oxford.

I enjoyed chatting with you about social enterprise and Michael Porter’s “shared value” theory.

Thanks for taking the time to visit Oxford and share information about Bain’s graduate program.

Best wishes,
Joe

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]

Gaining Consulting Contacts

Building Contacts

(Source: Flickr)

AS an aspiring consultant, the purpose of networking is to gain industry contacts, learn about your target firms, and obtain names that you can use in your application cover letter (e.g. “I am applying to Bain following my discussion with your Associate John Citizen at the recent New York University careers fair.”).

There are various ways to gain contacts prior to sending out your consulting applications.

Here are three:

  1. On campus recruitment events and careers fairs are the easiest way to meet consultants and HR people;
  2. Reaching out to family friends and classmates who are current or former employees at your target firm is another good approach;
  3. If you are at non-target school and don’t have any relevant contacts, then cold calling the recruiter and asking to talk with her is a suitable fall back option. You can talk to her over the phone or, if possible, arrange a time to meet for coffee.

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]