My oldest consulting client, aka my wife, works as a planner for a reasonably large corporation. About two years ago, they were bought by the private equity arm of Bain Consulting, who have since been trying to improve returns at the entity they bought. We have a privileged vantage point on their efforts, embedded as my wife is, in one of the most critical departments of the business. And it is hard to believe how badly a top 6 consultancy can do, and in a business they actually own.
One of our most useful methods of consulting is the inference-based investigation. When using inference-based investigation, one asks, what could be going on at Bain, to explain the actions we see in the field? Naturally, this is an investigation in the midst of uncertainty. We can not know everything about Bain's motives and strategy, and we can observe only a few of their tactics. But all of this is very normal for a real-life consulting case. What do we see going wrong at Bain?
Start from the premise that Bain goal is to improve return on investment for the business it bought. Was this the business to buy? The answer for us is clearly, No. My wife's employer is essentially a manufacturer of a commodity product. Classically, in a commodity business, you can improve returns by cutting overhead or consolidating. After two years in the business, Bain shows no concrete sign of having the budget for a consolidation strategy.
It is famously hard to improve returns in a commodity business without having a consolidation strategy. It is conceivable to do something by shrinking the overhead, but would you try this in a socialist country with strong employee protections? At first glance, it is very odd that Bain should pursue this track, and to us it indicates a shortage of good idea in their core business of consulting. But, and to their credit, they have found an HR-driven tactic to let go some employees who don't know the details and cannot properly evaluate strength of their own position.
Overhead Vs Talent
To recap, we did assume that Bain wants to improve returns for the business it bought. And we are going to assume they are not quietly pursuing a consolidation strategy. And we know that people have been fired. Therefore our conjecture is that Bain has played its hand and we can now evaluate how they did. The answer is, Not Good. If the strategy boils down to firing people, then agency risks mandate that you don't leave to the old management team the critical job of choosing whom to fire. That's especially so in a commodity business, where a salary based approach is going to miss the difference between experienced critical staff and top management chaff. Standing on the side, we are shocked to see a global name and top 6 consultancy make firing decisions purely based on salary levels, without any investigation of how the business runs. Bain never interviewed the rank and file, nor was any effort made to generate an independent rating of performance vs cost. Had they done any of this, they would not now be letting the chaff fire the heart and soul and cut off the hands. Bain may or may not succeed in skirting the local employee protection laws. But we predict the returns on that track will be minimal, for confidential reasons. And all this time, the real money is still on the table and no sign of Bain seeing it.
#Bain # Restructuring #Overhead #PIP # PersonalImprovement