Taking Profit

I am currently living in Beijing, lecturing strategy and finance courses to undergraduates.

One observation I’ve made is that the people here are good at identifying opportunities for profit.

And I use the word profit not in a financial sense, but with the broader meaning of the French verb profiter, which means “to make the most advantage of”.

This can have positive, negative and hilarious consequences.

Here are three examples:

  1. Food is a religion here in China. There is no better example of making the most out of life than having a true appreciation of good food. (Peking duck, jiaozi and baozi are my three current favourites.)
  2. People often say that the Chinese are hard bargainers, which is true. They see how big the pie is, and, with a friendly smile, they ask for all of it. This is obviously a generalization, but I have witnessed it enough times for it to have become a familiar pattern. It can be extremely positive, for example, if the person is your friend and is helping you to bargain for a big ticket item. It can also have calamitous consequences, such as the traffic jam which is frequently caused at an intersection near my apartment because every driver tries to gain a small edge by cutting through the intersection without waiting for a green light; a complete traffic meltdown typically ensues.
  3. Opportunity knocks at the door only once (机不可失,时不再来). I was recently at a large French retail store called Auchan. I left my shopping trolley at the end of a long isle, with a few items in it, and walked down the isle to see if I needed anything. When I returned to my trolley, I noticed that my items had been neatly placed on a shelf, and the trolley was gone. It took me a half a minute to figure out what had happened … someone had stolen my trolley! The experience was so bizarre. Five minutes later and a few isles further along I spotted a middle aged Chinese lady with a huge carry bag sitting in a trolley that looked suspiciously like the one I had lost.

Sometimes you have to laugh.

We would do well though to follow the Chinese example of trying to always make the most out of life, particularly where it involves a shared positive experience or the chance to create something valuable for others (like the wonderful Chinese cuisine!).

Profite!

Disclaimer: Creating traffic jams, and stealing shopping trolleys should generally be avoided.

Consulting Jargon

Consulting Jargon

(Source: Flickr)

We have commented on consulting jargon before, but we will do it again.

Organisations hire management consultants to provide advice on their most challenging business problems. Senior management are busy people, and so consultants need to communicate as clearly as possible.

The need for clarity, however, has not prevented consultants from developing an industry jargon all of their own, which can sometimes be pretty incomprehensible to industry outsiders.

Below we outline some of the jargon that you are likely to come across in the consulting industry.

10,000 foot view: A high-level overview of the situation.

80/20 rule: A rule of thumb which holds that 80% of a business problem can be solved by focusing on 20% of the issues.

Add some color: Make it more interesting/appealing/persuasive.

Adding value: Making a contribution.

AOB: Stands for “any other business” and might be used in a meeting agenda to block out time for miscellaneous discussion.

At the end of the day: A consultant may use this phrase before summarising the main thrust of her argument.

B2B: Stands for “business to business” and indicates that a business is aiming to sell to other businesses rather than to end consumers.

B2C: Stands for “business to consumer” and indicates that a business is aiming to sell directly to consumers rather than to other businesses.

Bandwidth: Capacity to take on additional work commitments. For example, “I don’t have any bandwidth this week”.

Big 3: McKinsey, Bain and BCG.

Big 4: Deloitte, EY, KPMG, PwC.

Boil the ocean: Go overboard; undertake an excessive amount of analysis; fail to follow the 80/20 rule.

Buckets: Categories.

Buy in: Agreement; support. For example, “we need to get buy in from the client before finalising the report”.

CAGR: Compound annual growth rate.

Charge code: A unique code provided for a project which can be used to record work-related expenses.

Circle back: Follow up with someone at a later point in time.

Close the loop: Completing an item on the agenda or topic of discussion with everyone being in agreement.

Core client: A client that has a long-standing relationship with the firm.

Deck: PowerPoint slides.

Deep dive: To conduct an extensive examination of a particular issue.

Deliverable: Work product that a consultant needs to provide to her manager or the client as part of a client engagement.

Development opportunity: A professional shortcoming or area for improvement that requires attention.

Due diligence: Comprehensive examination of all relevant issues, such as a review of the client’s business or industry.

Elevator pitch: A short persuasive summary of a proposal, which leaves the listener wanting to know more.

Fact pack: A pack of information that provides the essential facts for a project/industry/company.

Granular: Focusing on the finer details, as in “this analysis needs to be more granular.”

Hard stop: A stated time after which the person will no longer be available to continue the meeting/discussion. For example, “I have a hard stop at 3 o’clock”.

Key: Critical; essential; required; important; central. For example, “the key issues are X, Y, Z.”

Let me play this back: Words used before providing a summary of the discussion from the listener’s perspective. This is a helpful technique which can allow a consultant to clarify her understanding of the key issues and at the same time sound intelligent by saying something even if the summary adds no additional insights.

Leverage: Make use of.

Low hanging fruit: Targets that are easily achievable, issues that can be quickly resolved, opportunities that can be readily exploited, or problems that are simple to solve. By picking the low hanging fruit first, consultants can demonstrate quick results, which can boost client confidence in the project and help build initial momentum.

Lots of moving parts: Complex.

Managing upwards: Providing feedback to more senior employees.

MBB: McKinsey, Bain and BCG.

MECE: Pronounced “me see”, and stands for “mutually exclusive, collectively exhaustive”. It is a principle developed at McKinsey for grouping information into distinct categories which, taken together, deal with all available options.
On the beach: In between assignments. Time spent on the beach may be spent in training or used for new business development.

On the same page: See things from the same perspective.

Opportunity cost: What you give up in order to pursue an opportunity; the value of the next best alternative.

Out of the box thinking: Lateral thinking; coming up with new ideas which don’t follow neatly from the data.

Ping: Contact someone, as in “I will ping you later via email.”

PIOUTA: Pulled it out of thin air.

Pipeline: Current and upcoming client engagements.

Production: A department of the consulting firm (often outsourced) that assists in producing material needed for presentations and meetings.

Pushback: Resistance or disagreement, as in “we received some pushback from the client.”

Right size: Downsize.

Sandwich feedback technique: A structure for providing feedback that resembles a sandwich – one positive comment, followed by a piece of constructive feedback, and ending with a positive comment.

Scope: Agreed set of deliverables for a client engagement.

Scope creep: When the client adds, or tries to add, additional deliverables which were not agreed in the initial project brief.

Sniff test: A common sense check of a particular idea, proposal or analysis.

SWAG: Some wild-ass guess.

Take the lead: Take responsibility for something, as in: “Why don’t you take the lead on this project.”

Takeaways: The key points that should remembered at the end of a discussion or meeting.

Touch base: To meet at a certain time to talk about the project.

Up or out: Many top consulting firms employ an “up or out” policy. Employees are expected to advance up to the next level of responsibility or they will be counselled out of the firm.

Work stream: The tasks that make up a project.

[For more information on the management consulting industry, download “The HUB’s Guide to Management Consulting“.]

Learn How To Avoid The Five Most Common Mistakes Made By Leaders And Managers

Learn How To Avoid The Five Most Common Mistakes Made By Leaders And Managers

If you have recently been placed in a leadership or managerial position in your company, then you may need to change the way you approach work each day.

The five most common mistakes discussed below are made by those in management in virtually every sector of the business world.

Learning how to avoid them can help your team to thrive!

1. Goals – A team without goals is a huge problem. Some managers, especially those that are new to the role, make the assumption that everyone knows what to do rather than providing guidance regarding assignments and priorities.

2. Poor focus – Even those who have set goals do not always focus on what’s important. Rather than acknowledging progress and creating positive results, these managers get caught up in the details and busyness of urgent everyday tasks.

Rather than micromanaging your team, monitor their progress on a schedule, ensuring that they are moving forward as needed. Running around the office looking busy all of the time is not the same as accomplishing the desired results.

3. Hiring and firing – It is important to have a strong team capable of handling the tasks assigned to them.

In a rush to have sufficient manpower, some managers make the mistake of hiring people too quickly and are slow to let them go, even when it is apparent that they are not capable of fulfilling their role.

These poor practices can harm the morale of the team and make it even more difficult to get the job done.

Make sure that you consider candidates carefully before hiring. Not only do applicants need to have the necessary skills and abilities, but they also need to have the right combination of personality, flexibility and dedication.

It is better to have an open position than to expect your team to carry someone who is not a good fit for the job.

Likewise, delaying firing an employee can lead to frustration and your team may believe that you are too soft. Although it can be difficult to let someone go, you should not keep someone on the payroll just because you are uncomfortable with confrontation. You will be doing the employee and your company a favor by ending things quickly. Firmly but politely explain to the person why she is being let go, and give some positive feedback concerning the areas where she excelled.

4. Morale – No matter the size and type of organization that you are leading, good morale is essential.

Some managers believe that they need to rule with an iron fist, forcing employees to mold into some preconceived idea of what a “perfect employee” looks like.

Instead, you need to keep an eye on morale and take steps to boost it when necessary. This may be through encouraging stories or giving praise to team members for their contributions. In fact, some leaders make it a point during conferences to find something positive and honest to say about each person and the value they contribute to the team.

5. Poor boundaries – Whether standoffish or being a buddy, both strategies are doomed to fail for leaders. If those under you are not comfortable approaching you with questions, your company can lose valuable resources down the line because of mistakes. And, while you should be approachable, you should not perceive yourself as an equal, nor should they. While you can socialize and joke with the team, you should maintain a degree of separation. Otherwise, you may have a difficult time reprimanding someone and some employees may take advantage of your friendly nature.

You can embrace the challenges that come with your new role as manager or leader and have a strong team as a result. Avoid the five most common mistakes and continue to learn from mentors and others about the methods, tools and tricks for becoming a respected and successful leader.

Jeremy Johnson is a real estate enthusiast and has written content for dozens of real estate and related sites around the world. RealEstateCompanies.info is a side project he maintains because of his interest in real estate.

Consulting or Banking

Consulting vs Banking

(Source: Google Images)

If you are a high achieving undergraduate or MBA student, then you are likely to be considering various highly paid and prestigious career options.

This post provides you with a high level comparison of management consulting and investment banking.

1. Nature of the job

Management consultants assist organisations by providing advice to address specific problems and to improve organisational performance.

Investment banks help companies raise money for various purposes including investment, acquisitions, and provision of working capital. They do this by selling stocks and bonds to public investors. Within an investment bank, the work is split into many roles including investment banking, sales and trading, equity research, risk management, operations, and technology.

People in the “investment banking” or “corporate finance” division typically help large organisations undertake merges and acquisitions. This is a front office role and normally the most prestigious and highest paid role at an investment bank.

People in the “sales and trading” division buy and sell financial products. Sales people communicate with investors to sell financial products. Traders buy and sell securities with the bank’s money with the aim of making money for the bank.

People in “equity research” review listed companies and provide buy/sell recommendations. Investment banks employ “sell-side analysts” while investment funds employ “buy-side analysts”. The research division will provide reports to the sales and trading division to inform trading activity and provide ideas to help sell financial products. The research division may also provide research to clients in the hope that they will execute trades through the bank’s sales and trading division.

Risk management is a middle/front office role which assesses the market or credit risk assumed by the bank or its clients in a particular transaction. Prior to the 2008 financial crisis the views of the risk management division in most banks were overlooked in favor of the short term profit opportunities pursued by the investment banking division (this may or may not still be the case).

Investment banks also employ people in a range of back office roles including operations and technology.

2. Salary

For fresh graduates, the base salary for investment banking is typically similar to the base salary for management consulting. However, in good years bankers typically get an end of year bonus in the range of 50% to 100% of base salary. Consultants may also receive an end of year bonus, but it will be much smaller, around 10% of base salary.

Salaries will vary by country and over time.

Below are some average base salary and bonus figures for new analysts drawn from Glassdoor for 2014/2015.

Consulting or Banking

In general, adjusting for experience level, bankers will earn more than consultants.

While there are many factors to consider when charting your career direction, if money is a deciding factor for you, then banking may be the way to go.

3. Lifestyle

Hours: Banking work hours can average 10 to 18 hours per day, while consulting work hours average around 12 hours per day.

Work hours in both industries will vary depending on various factors including client demands, the eccentricities of your boss, and where you find yourself in the deal/project lifecycle.

Travel: Bankers sometimes do roadshows to drum up support from investors, but will typically spend 90% of their time in the office.

In stark contrast, it is normal for consultants to travel up to 80% of the time.

Work culture: Consulting firms typically have a professional and collegial atmosphere where an intense client focus is combined with networking and professional development opportunities.

In comparison, investment banks are competitive and hierarchical. It is not uncommon for bosses to yell at staff for mistakes, and colleagues are less likely to lend a helping hand since everyone is competing for the same bonus pool.

4. Exit Opportunities

Consulting offers many exit opportunities including industry, academia, government and entrepreneurship. Top consulting firms make a point of keeping current employees in touch with alumni, so there are likely to be many firm sponsored networking events.

Investment banking is an excellent starting point for future careers in the finance industry including private equity and hedge funds, although less helpful if you want to pursue non-finance related exit opportunities.

[For more information on the management consulting industry, download “The HUB’s Guide to Management Consulting“.]

In Search Of Returns

The wonderful thing about financial markets is that they help to get funds from people who have them to people who have a productive use for them. In other words, they help to make things more efficient by enabling money to be put to good use.

The problem with financial markets, though, is that more often than not participants insist on measuring everything based on “return on investment”.

Why is this a problem?

Well, return on investment is a measure which is interested in how much cash you will get back, and how quickly. If you assume a fairly conservative required rate of return of 7%, then cash received ten years from now would be worth about half as much as cash received today.

As a result, this way of thinking focuses the mind on short term gains, and encourages us to ignore the future.

A similar problem can occur in a social setting.

The wonderful thing about community organisations is that they can bring people together, and give people with particular talents an opportunity to contribute towards a constructive goal. In other words, they make communities more effective by enabling people to put their talents to good use.

The problem with community organisations, though, is that more often than not the people who lead them insist on measuring everything based on a “social return on investment”.

What does this mean? And why is it a problem?

Well, if you are willing to come with me on this thought experiment and assume that all human life has value. Or more broadly, that all life has value, then we can quickly see how measuring things based on their “social return on investment” can lead to questionable outcomes.

Imagine, for example, that you are the bishop of a Catholic diocese based somewhere in America and a Muslim community based somewhere in the Middle East has recently been bombed by American troops causing a large number of civilian casualties.

This is certainly a human tragedy, but you may be less likely to make a public outcry than you would have been if the affected community were Catholic. In other words, since your actions earn you less social returns, you may be less likely to act.

A focus on financial returns encourages us to ignore the future, and a focus on social returns encourages us to ignore the needs of people who might benefit from our assistance the most.

In either case, by thinking about what we might get from the deal, rather than about how we can contribute, we limit our freedom to act and the chance to make the world an easier, better and more enjoyable place to live.