Author Archives: kevin

About kevin

I write the posts

Should you invest in the world’s poor, Iraq, or in your heating closet? Three new consulting reports

Posted on

Most consulting companies have newsletters; the goal of these newsletters is to convince you to try and hire the company. Many newsletter articles focus on investigating new markets. From a business point of view, this makes sense, because the consulting firm is positioning itself as an expert on the new market, firms will have a learning curve any time they enter a new market, so it’s natural for a firm to want to hire some help. Here are three recent examples of consulting firms telling you where you should invest:

The world’s poor
(Source:McKinsey & Financial Access Institute: Half the world’s poor are unbanked)
The report notes that tons of the world’s poor don’t have access to formal credit, and that the regulatory climate for microfinance firms is mixed. This is part of the “double goal” of providing social services to the poor.

Quality of the report: There are many poor people without access to formal financial services – are you surprised? What is perhaps surprising is that the poor are already sophisticated borrowers and lenders. As Daryl Collins et al.’s new book, Portfolios of the Poor, explains, most poor people have uneven incomes, but need to be ready for emergencies, save for big expenditures (weddings, school fees), so they turn to credit and savings out of necessity. Most lending is done with a neighbor or a savings club (a neighborhood group) although microfinance is becoming more prevalent.

Business Opportunity: Storing cash with neighbors is risky and not useful over long periods of time (5-10 years) for instruments like term life insurance. There’s an opportunity for microfinance firms to start profitable, and helpful, businesses if they can provide a reliable service, flexible repayment schedules and logistical support to get to poor neighborhoods.

At the same time, the poor are poor, and while there’s a huge volume of people demanding financial services, and the potential to charge high interest rates, the margins per customer served are small. Furthermore there’s bound to be excessive rent-seeking from people and firms who aren’t worried too much about profits.

Iraq
(Source: McKinsey Quarterly, interview with Paul Brinkley of the Department of Defense)
Paul is charged with managing and growing business in Iraq. I like Brinkley because he’s a realist, and willing to embrace things that have worked in Iraq, instead of staying beholden to an ideology. For example, state controlled enterprise has worked better in the short term than free market “shock therapy.” Paul says:

“I honestly believe Iraq is one of the last great “ground floors” we will ever have in the world. China in the late 1980s and early 1990s was a ground floor—if you got in at that time, you did very well. India followed. Iraq today is a ground floor. It doesn’t have the population of China or India, but it has a huge amount of mineral wealth, oil wealth, and agricultural wealth. Geographically, it is positioned to become one of the most prosperous countries in the world. And I don’t think that ground floor is going to stay open for too much longer. I think we have a few more months, and then the acceleration of investment in Iraq will take place. I expect that to happen during 2010.”

Quality of the report: It’s clear that Brinkley has his head screwed on straight but it’s difficult to evaluate the opportunity, because I know zero about the current state of Iraq. How has Vietnam done after the war? Afghanistan? Former British colonies have done remarkably well, but that was a completely different situation than we are in today. Many countries that are rich in resources use them to become rich and don’t invest in other parts of their economy (Venezuela, Uganda, Iran). Dubai has tried but that’s still being worked out.

Cutting energy costs.
Boston Consulting Group and MIT Sloan,
The Business of Sustainability. Industry leaders are going green, and by going green I mean reducing their energy use, not engaging in wasteful signaling. However, the managers that do look into the issue are often surprised by the large amount of possible savings.

Quality of the report: As a survey of people actually involved in the industry, I’m likely to trust the included findings.

Business opportunity: This one’s actually pretty strong. Because the IPCC’s estimates of oil reserves are too high world oil supply may start to decrease sooner than most people estimate, and world demand for energy will only increase, potentially leading to higher prices (certainly high demand for energy-reducing devices).

There’s lots of politics surrounding the issue and many managers don’t think there’s much profit there. Because of the politics, it’s difficult for managers to evaluate the actual opportunity; if managers aren’t strong believers in global warming then they won’t be stirred by the global warming argument. However the stronger argument is that firms can save a ton of money by going green.

Words like “sustainability” are not helping. “Sustainability” implies lots of beliefs about global warming and a rather strict interpretation about how much energy you should be using. They discourage managers from approaching the issue as they would any other relevant cost-saving opportunity.

Liked what you read? I am available for hire.

Save the planet, increase workforce satisfaction, increase productivity by hiring better managers

Posted on

Two economists just completed a huge worldwide survey on management practices. A team of MBA’s went to firms and interviewed them on their management practices, generating scores in three different categories (Incentives, Monitoring, and Targets) and then using the data to draw a whole bunch of conclusions about management. Everything in here is correlation (it’s not certain which way the causation runs) but when you generate enough correlations, it gives you an idea of the importance of good management, in a Bayesian sense.

  • GDP and good management practices are highly correlated (R^2 of 0.81). That is, countries with high GDP are also likely to have firms with good management practices. Greece scores even worse than India and Brazil on firm management. Portugal is just slightly ahead of India and Brazil. Their low scores can be attributed in part to government intervention in the labor market.
  • Improved reallocation accounts for a large percentage of the difference. That is, the market identifies more efficient firms and allows them to grow more rapidly in countries like the USA. Competition is highly important for this process, and also to weed out inefficient firms. It’s more important to look at the bottom of the distribution than the top to determine which countries have the best management; countries that allow inefficient firms to hang around score poorly.
  • Higher management scores are correlated with better performance at the firm level. A one standard-deviation increase in management correlates with a 38 percent increase in sales per employee.
  • Larger firms have better management. On the surface this may refute the Peter Principle, but it tends to suggest that smaller firms with better management out-grow other small firms with bad management. Over time, if a firm stays the same size perhaps management falls.
  • At the firm level, better management is associated with improved health care outcomes, employee satisfaction, and energy efficiency. Note to shareholder activists: Promote better management!
  • Labor market regulation hinders incentives management. At least half of incentives management is the ability to remove/improve low-performing workers, pay for performance and change the workstaff’s hours.
  • In terms of classes of ownership, private equity companies have the best management, followed by dispersed shareholder ownership. Government has the worst management, followed closely by family firms with a in-family CEO, firms still owned by the founders, and firms owned by private individuals. I was surprised to see that firms owned by the founder (in 100-5000 person companies) perform so poorly. The authors suggest that necessary management skills for a start-up don’t transfer well to necessary skills for a 100-5000 person firm.
  • Management practices diffuse slowly over time. Managers are not well informed about how good their own management practices are and which areas need improvement (ha! Maybe there’s a role for consultants after all.

All in all these suggest that one of the best things we can do for development is try to transfer good management practices to developing nations, either in the form of FDI or through education. There was a great speaker at the Ath last year whose firm provided business guidance to small companies in Mexico and helped them grow.

Another experiment by the same group took a random group of textile firms in India and provided them with free management consulting. Not only did performance grow in the firms provided the consulting, but they also said the reason that they didn’t implement the changes sooner was because they were not aware of good management practices.

Data collection is an underrated skill – this analysis was only possible because these guys arranged surveys of thousands of firms in 40 different countries. The impressiveness is in the dataset, not in the analysis; same goes for Ken Rogoff and Carmen Reinhart’s This Time is Different, which I’m currently reading. It’s usually lumped in with science or statistics but it’s something people should know how to do (and analyze)

Liked what you read? I am available for hire.

Is it true that to do the best work, you need to hire the best people?

Posted on

I’ve read a few posts by prominent Silicon Valley people that say this.

Here’s a quote about hiring from Slava Akhmechet at RethinkDB:

I look to Bell Labs for inspiration. At its peak, the folks at Bell Labs developed radio astronomy, the transistor, the laser, information theory, the C programming language, and the UNIX operating system. These are the kinds of people you should be trying to hire. Think Dennis Ritchie before he developed the C language. Think Claude Shannon before he invented information theory. When in doubt, ask yourself: “would this person have been good enough to be hired for a junior position at Bell Labs during its peak?” If the answer isn’t a resounding yes, it’s a No Hire.

Joel Spolsky also stresses the importance of hiring good people. Similarly, HR consultants often stress the importance of hiring only the best. As the Boston Consulting Group puts it, A players hire other A players, B players hire C players and C players hire F’s. Are they right to focus so much attention on hiring only outstanding people?

It’s clear that if you are trying to sort through an applicant pool, you need to get the best possible sense of what an applicant will look like once they’re hired. It’s not good to make mistakes in your interviews, or fail to interview candidates thoroughly enough. Two, it’s possible that people will be biased toward hiring too low quality employees, and emphasizing hiring good people will help HR raise hiring standards.

It’s also true that in a startup, any one individual has a much greater effect on the final shape of the company than at Wells Fargo. So startups and small firms might be right to exercise lots of caution in hiring. Furthermore, the best programmers can be five times as productive as average programmers.

But as Bob Sutton and Jeffrey Pfeffer point out, it’s a myth that the best companies are best because they have the best people. Usually the best companies have great systems that bring out the best in people.

Take a look at urban poor schools that dramatically outperform their peers and even richer schools, like the KIPP schools, or Jaime Escalante’s calculus program, which brought a bunch of kids from inner city LA through Calc BC and sent many onto the nation’s most prestigious colleges. Where so many others have seen kids who were unwilling to learn, they have succeeded and turned ordinary street kids into superstars. Escalante and KIPP don’t have the luxury of hiring the best people, like Philips Exeter, Wharton, or RethinkDB. Instead they built a great system that brings out the best in their students, which is far more impressive than doing great things with people who are already great.

Another example is Toyota, which has such a great production system that the upper management’s role is largely to simply support the system. Sutton and Pfeffer write, “One study showed that Toyota was the only major automobile company where a change in CEO had no effect on performance. The system is so robust that changing CEOs at Toyota is a lot like changing lightbulbs; there is little noticeable effect between the old one and the new one.

The supply of talented people isn’t fixed. Furthermore, our ability to measure talent is limited at best; people have off days, or bloom late, like Kurt Warner, for example.

Furthermore, if you’re a firm that can’t afford to hire the top 10%, implying to your staff that their ability level is fixed would be disastrous. As Columbia University researcher Carol Dweck has shown, mindset is extremely important; people who believe intelligence is fixed become worried about hiding their true level of cleverness, where those who believe it’s malleable work on their skills and continuously improve. If your staff became too enamored of the first mindset, they wouldn’t be doing their best work.

In summary, bad systems are more damaging than bad people, and good systems can turn average workers into stars. Like anything else, hiring workers has tradeoffs; with the best staff come long periods of unfilled positions, increased search costs, and high salary, etc. The importance of hiring “only the best” is probably overstated; clearly hiring good staff is important but it may not be crucial.

Liked what you read? I am available for hire.

Getting things done on a terrible Internet connection – the canonical guide

Posted on

I lived for three months in India on a wi-fi network that would go on for two minutes, then off for three, and would randomly stop working for days at a time. So I got really, really good at getting work done on a terrible Internet connection. Here are some best practices.

  1. Avoid HTTP wherever possible. Your goal is to get the information you need and nothing more. Loading a full website, with ten Javascript files each requiring their own connection, ten CSS files, and fifteen images, will take forever. Meanwhile, the page render is blocked until the CSS finished downloading, so you can't even see the damn thing.

    Instead of loading websites in your browser, use different protocols. So instead of checking your mail at gmail.com (over HTTP), check it in Mail.app (over SMTP) and save yourself a ton of bandwidth. Instead of loading a chat client in the browser, load a chat client (over XMPP) and save bandwidth. Instead of loading your favorite website in the browser, save the RSS feed and read that instead (one HTTP request instead of thirty).

    I also set up tons of stuff to work directly via email - I could post to Twitter from email, update my Facebook from email. If I could help it I tried to push every interaction I had toward email or RSS.

  2. Cut down on HTTP requests, if you can't help it. Currently Firefox is the best bad-connection browser. Open up the settings and disable Javascript and images. Download the FlashBlock and AdBlock plugins. These will save you 40-50% of the number of HTTP connections you have to make, and lots of the throughput - images often use the most bandwidth and most of them add little. Furthermore any ad that streams video will kill your speed and crush your download time.

    Boost the size of your cache as high as it can go - I would say half of available RAM - so that images and other assets will be loaded from your machine, instead of downloaded from the Web. Make sure to kill tabs when you are done with them, as well - many modern AJAXy applications will continue making requests to the server even when they are not being used.

  3. Use a mobile user agent. Most websites will send less data to mobile phones than to regular browsers. On Firefox you can download the User Agent Switcher add-on and pretend like you are an iPhone. You should also use the mobile versions of popular sites like Facebook (m.facebook.com) and Twitter (mobile.twitter.com)

  4. Do most of your work offline. If you are developing websites, make sure you can replicate your production environment on your local machine, so you can experiment without making HTTP connections. Use a fast, compressible protocol like Git or rsync (instead of FTP) to compress the amount of data you send over the wire to your server.

    Use a good desktop mail client that can queue up outbound messages for you, then do all of your email offline. When you get back online, sending and retrieving messages over SMTP should only take a minute or two.

  5. Kill background data hogs. Lots of desktop programs will automatically connect to their home bases like you have a great connection. Some you should kill: Dropbox, the Adobe AIR Updater, Microsoft Office Updater, Software Update, any programs that load on startup, the Google Chrome auto-updater, as well as any program that has an "Automatically check for updates on startup" box.

    You should also kill any programs that are set up to load on startup in the "Login Items" preference pane. You can get a list of open HTTP connections by running netstat -a in the Terminal, although note that a lot of connections to popular sites may not be to the web domain you know (eg Google serves some content from 1e100.net and other domains). Also check your /Library/LaunchAgents and /Library/LaunchDaemons, as well as your ~/Library/LaunchAgents/ folder for apps that start running themselves in the background on system startup.

Conclusion

So that's about it; I can also go on about the terrible performance of websites on degraded browsers, or how most mobile apps break unnecessarily when they don't have a data connection (looking at you, Words with Friends). A bad internet connection is really frustrating and some of these tips will hopefully help you consume the Internet like you're used to.

Liked what you read? I am available for hire.

Why consulting?

Posted on

We’re making discoveries and innovating at a pace that’s faster than ever, thanks to population growth, world markets, and the Internet. Information transfers slowly; despite what economists say, firms aren’t efficient and lots of times they can do things better. Consultants have expertise about how to improve management and become more efficient, and when this knowledge is shared/diffused to companies, everyone is better off.

Why should I read this blog?

You’d like to know more about what consultants do than you can get from reading a Dilbert comic. Maybe you’re a college student wanting to learn more about consulting or an executive considering a career change. I’m going to provide information about the consulting profession, and interviews with current consultants. I’ll also blog about what consultants are currently doing and speculate about what they’ll announce they’re doing in the future. I might also post about good management practices and business economics, which are part of an information set that makes consultants useful.

Why me?

I find myself saying to most employers, “I’ve got a lot of knowledge about what works and what doesn’t, and I’m really smart and can help you out, but I don’t have much output,” which is sort of like what consulting firms would say if they didn’t have good reputations. Two of the things I’m best at are blogging and reading; I can get a better idea about what consulting firms do, demonstrate my skills to them and practice subject-specific blogging.

I also want to practice blogging about one specific area for a long period of time; forcing myself to focus on one area. There aren’t very many consulting blogs, so I figured this would be good.

Liked what you read? I am available for hire.

If you want to be a consultant, what skills should you learn?

Posted on

Ideally, consulting is about giving firms better strategies, and to some degree consultants have to provide useful information and strategies to companies to stay in business. So you’re going to need a basic level of intelligence and analytical skill. Microeconomics is a useful framework for understanding how people make decisions, thinking about things in terms of cost-benefit analysis, thinking at the margin, etc. Accounting is also important, because you need to be able to look at a firm’s books and get an idea of what’s going on at the firm. Also I’m guessing that being knowledgeable about the world, having some idea of what strategies are good, is helpful.

Additionally, a lot of your job as a consultant is selling your services and acting knowledgeable. Many people are stuck in Dilbert-like situations and will look at you as a knight in shining armor. For this you’re going to need to be friendly, personable, and high status; you’re going to need to sell yourself as an Answer Guy, that will come in when everything else has failed, increase profits and make everyone happy. People don’t really practice these skills very much, but you can learn more about them by filming yourself, reading Dale Carnegie or Neil Strauss’s The Game, practicing conversational skills, or practicing conversation in front of a mirror.

From a hiring perspective, Bain and McKinsey and Deloitte and BCG and the other consulting firms are going to get a lot of applicants that sound exactly the same; you have to have something that lets you stand out from the crowd. You can only do this with your GPA to a limited degree; to score a home run, you should work on your impressiveness; on doing things so unique and cool that other people find it hard to imagine that they could have done the same if only they’d put in enough time. The only person I know who talks about this regularly is Cal Newport, so start there if you’re clueless. Maybe impressiveness predicts how people will eventually do in a job and maybe it doesn’t, but it definitely will help you get through the gate.

Note that it doesn’t take much money to learn most of these skills. There are tons of courses online, and there’s the library, of course. There’s also probably a big gap between the skills you need to have to get in the door and the skills most relevant to consultants on a daily basis.

I’m not a consultant so these are just my best guesses. If you are a consultant, which skills have come in the most handy? Which skills were most important for you to get your foot in the door?

Liked what you read? I am available for hire.

A disastrous tale from a young BCG consultant

Posted on

This story by Keith Yost, an MIT alum, was featured on Hacker News today. Yost was hired out of school to work for the Boston Consulting Group in Dubai, making about $200,000 a year straight out of school. When the world economy crashed hard, the bubble that was Dubai crashed even harder, and Yost describes living in what was for all intents and purposes a ghost town.

Here’s Yost discovering that consulting isn’t about giving good advice:

The first clue that my mental picture of consulting was off came with “training” in Munich. I expected instruction in Excel programming, data analysis, and business theory. Instead, Munich turned out to be little more than a week long social outing with other recently matriculated consultants and analysts within the BCG’s European branches. We donned name tags, shook hands, and drank often. Classes were fluffy, and mostly consisted of discussion of high-level, almost philosophical topics. I got along well – as both an American and a member of the Dubai office, I was doubly foreign and therefore double the curiosity.

The importance of appearing credentialed:

Despite having no work or research experience outside of MIT, I was regularly advertised to clients as an expert with seemingly years of topical experience relevant to the case. We were so good at rephrasing our credentials that even I was surprised to find in each of my cases, even my very first case, that I was the most senior consultant on the team.

Clients hiring consultants beacuse they think they should:

I quickly found out why so little had been invested in developing my Excel-craft. Analytical skills were overrated, for the simple reason that clients usually didn’t know why they had hired us. They sent us vague requests for proposal, we returned vague case proposals, and by the time we were hired, no one was the wiser as to why exactly we were there.

I got the feeling that our clients were simply trying to mimic successful businesses, and that as consultants, our earnings came from having the luck of being included in an elaborate cargo-cult ritual. In any case it fell to us to decide for ourselves what question we had been hired to answer, and as a matter of convenience, we elected to answer questions that we had already answered in the course of previous cases – no sense in doing new work when old work will do. The toolkit I brought with me from MIT was absolute overkill in this environment. Most of my day was spent thinking up and writing PowerPoint slides. Sometimes, I didn?t even need to write them – we had a service in India that could put together pretty good copy if you provided them with a sketch and some instructions.

Clients hiring consultants because they want to be told things they already know:

What I could not get my head around was having to force-fit analysis to a conclusion. In one case, the question I was tasked with solving had a clear and unambiguous answer: By my estimate, the client’s plan of action had a net present discounted value of negative one billion dollars. Even after accounting for some degree of error in my reckoning, I could still be sure that theirs was a losing proposition. But the client did not want analysis that contradicted their own, and my manager told me plainly that it was not our place to question what the client wanted.

[…]

At one point my manager said to me, “Change the numbers, but don?t change the conclusion.” Of course, there’s no trouble in changing the numbers – it’s not as if there was much of a basis for this set of numbers over another – but change them how, and to what? Who knows?

I signed a non-disclosure agreement when I first took the job, but that only covered BCG’s intellectual property and client identities, things that seemed entirely reasonable to protect. This agreement [BCG’s non-disclosure offer upon firing] went much further. Not only did it bar me from making any disparaging comments about BCG or my work experience, but I wouldn?t even be allowed to reveal the existence of the non-disclosure agreement itself. The implication was clear: I could either be a cheerleader for BCG or stay silent, but anything else would bring swift legal retribution. When I asked to have the non-disclosure clauses removed, I was told that the agreement was a standard offer to employees, and that its terms were non-negotiable.

I’m not in a position to evaluate how much of this is true, or how representative Yost’s claims are of the consulting industry for graduates. It’s possible, but unlikely, that he didn’t fit in and he’s now telling extravagant lies about his employers. Yost did have his blog, and lots of consulting practice revolves around secrecy, so it’s possible that he didn’t fit in and is now disgruntled.

Liked what you read? I am available for hire.

The evidence for evidence-based management

Posted on

Evidence-based management is the idea that you should implement programs or choose amongst strategies based on what the existing literature or data suggests is the best thing to do. If there isn’t any evidence, then invest in data collection, or run small-scale experiments, to figure out what works and what doesn’t. It’s a useful method for making decisions and implementing programs in a company. There’s evidence that companies that persistently rely on data and experiments do better than those who make guesses.

Put this way, evidence-based management sounds like something every company says it does. Yet the truth is that few companies pursue this approach, and many managers use alternatives to evidence-based management, like relying on intuition about the best way to go forward, making guesses about the future, or assuming that the current setup is optimal.

The problem is larger than it should be because many business gurus, consultants and business schools peddle misinformation and outright falsehoods. There’s a consistent business in selling hot new trends to companies, even though the best strategies may be really old. No one likes being told they have to execute better; they’d rather grasp at some new thing that’s going to give them an advantage. The evidence about which strategies work often runs contrary to what the conventional wisdom says. For example, one law firm held a big meeting to reveal its new “secret” strategy, developed by a consulting firm; Sutton guessed the whole strategy without looking, which mainly involved getting rid of unprofitable partners and developing more profitable business. It was old advice that every law firm knew, and the trouble was in the execution.

Debunking myths is the subject of Bob Sutton and Jeffrey Pfeffer’s book Hard Facts. The authors use evidence, and numerous case studies, to explain that financial incentive plans often don’t work, developing a comprehensive long-term strategy isn’t that important, most mergers only work under certain specific circumstances, and company culture can be more important than hiring the best workers. In each of these cases, studies have shown that the conventional wisdom is often wrong, and companies, schools or hospitals that implement evidence-based programs do better than those who don’t. Yet given the choice between the CW and the data, most managers and firms choose conventional wisdom. This leads to worse outcomes and helps explain why profit levels and efficiency levels can be so different in firms competing in the same industries.

I used to believe that, all else being equal, firms and industries were pretty efficient and there wasn’t much to be gained from entering a crowded industry, or in stooping to pick up a $20 bill. I don’t believe that anymore. The absence of evidence based management at most firms is strong evidence that there are tons of bills on the ground, and that people aren’t looking for them.    

Liked what you read? I am available for hire.

Don’t skimp on documentation

Posted on

I have a new blog post up on the Twilio Engineering Blog about best practices for your company's documentation. The three main points:

  1. Users are busy/lazy - you can't expect that they'll actually read anything, and you can't expect them to have any context, so make sure your code samples contain everything necessary to run the code.

  2. Users are coming from Google - so you need to SEO all of your documentation content.

  3. You are busy - so write the documentation first, when you're still excited about it.

The entire post is here - please take a look!

On a related note, I feel like I've been writing as much as I do usually, but sadly not all of it is visible to the public.

Liked what you read? I am available for hire.

Can you skip work tomorrow?

Posted on

Sometimes my friends ask this. I tell them "I can, but I probably won't."

The tech industry is an enlightened industry. Generally, employees are treated like adults and allowed to organize their days in a way that's productive for them. I usually wake up without an alarm, around 8:30 or 9, and I watch Liverpool games at the office if they're playing during the week. So if you ask me if I have to work tomorrow, the answer is No, I can take off work whenever I want. Another company that does this is Netflix, who lets its employees take as much vacation time as they want.

There's a flip side to this, of course, the reason that I usually show up for work instead of lounging around home in my PJ's watching Friday Night Lights. If I took enough days off work, eventually I'd develop a reputation as someone who didn't ship code. And maybe if someone else in the company wanted work done right, they'd turn to someone else instead. That's not a reputation that I want attached to my name.

It's not all stick, however. I also like showing up for work, making Twilio better and building an experience our users will be delighted with. And part of the reason I like it so much is because our company makes it a lot of fun.

So yes I watch soccer at work and have a beer at the end of the day and go on vacation a lot. But I also put in a lot of work; one day last week I showed up at ten, went home at seven and kept working until one. So I can take off work tomorrow if I want, but I probably won't.

Liked what you read? I am available for hire.