Most management consultants I have ever met follow a somewhat similar approach.
Step 1 is to look at what's happening. Step 2 understand why it is happening. Step 3 do (or recommend) something about it.
Pretty straightforward. Yet, looking at the output, it is rarely the same. Coming from an operational side, this has honestly confused me quite a bit. How come smart people who use the same vocabulary, similar approaches, and to some degree the same tools, get vastly different results?
What I've found out along the way, is that there are many levels to issues in companies. And consultants tend to stop at different places, depending on the model of their company, their own experience, and (perhaps the most important) what the customer is asking for.
Let me break it down for you.
Level 1 — Symptoms
The first level of identifying a company's issues is to look at the symptoms. Common ones include:
- Decrease in revenue
- Lower margins
- Increasing churn rates
- Decreasing customer satisfaction
- Losing key personnel
The symptoms are the visible signals that something is wrong. Regardless of the symptom, it is a sign that the business is under pressure. And they tell you where to look, but they never explain why the problem exists.
Treating symptoms may seem easy. And feel like you're doing something good. It can provide temporary relief, which is not to be underestimated in a struggling organization. But it rarely has an impact on the overall trajectory of the company. And the list of projects increase daily.
Level 2 — Operational Diagnosis
The next level, operational diagnosis, finds the direct causes behind the symptoms. Eroding margins may be because costs have increased faster than the prices or that the company's customer portfolio has shifted to a less profitable one. A loss of revenue may be due to the competitive landscape shifting or customer needs having changed faster than product management has adapted.
At level 2 you identify what happened within the business, which helps you define concrete initiatives.
- Change ideal customer profile
- Negotiate with key vendors
- Stream-line production
- Increase prices
At level 2, you will find the number of projects being fewer than if you stop at level 1. However, once an initiative is finished another one is almost always created.
Many improvement projects stop here.
Level 3 — Organizational Conditions
At level 3 focus shifts from what is happening in the organization to the conditions that created and are upholding them. Business processes are no longer looked at in silos and the organization is scrutinized in its entirety. You look at leadership, incentives, decision rights, governance, accountability, and collaboration.
To continue with the example of eroding margins. Pricing discipline may have deteriorated because sales was rewarded for revenue rather than profitability. Or perhaps there has not been anyone accountable for customer profitability, thus it was never challenged nor investigated.
Looking at the core of these issues, neither of them are operational failures. They are organizational conditions that repeatedly generated operational problems. By addressing issues at level 3, you can break the current cycle of recurring issues.
Level 4 — Compounding Friction
The deepest level is understanding why these organizational conditions have not only persisted, but compounded over time.
All organizations create friction as they grow, evolve, and change. Healthy organizations continuously remove the key elements of friction before it compounds into a major issue. And they do so through leadership, governance, and (perhaps most importantly) difficult decisions.
Unhealthy organizations normalize it. Major misalignment and conflicting incentives remain unresolved, uncomfortable conversations are avoided, ownership sends mixed signals, and decisions are repeatedly postponed. Over time, the accumulated friction erodes the organization's ability to adapt and self-correct.
Companies who have reached this stage should no longer focus on solving today's problems. They should understand why the problem keeps occurring. Why they've lost the ability to solve their own problems.
The Question Each Level Answers
As a little TL;DR, the levels can be summarized into one question each.
- Level 1: What is happening?
- Level 2: What directly caused it?
- Level 3: What organizational conditions produced those causes?
- Level 4: What allowed those conditions to compound instead of being resolved?
Go to level 1 for quick fixes. This is where a lot of organizations put most of their efforts.
Level 2 creates fixes that are a bit sturdier. Most management consultants and interim leaders have specialized in delivering at this level.
Level 3 is for preventing the same types of issues to surface over and over again. Experienced operators, turned consultants often want to steer the assignment into this territory.
Level 4 is where organizations become capable of sorting their friction and misalignment before it creates repeatable and debilitating problems. This is where I operate.
So next time you bring someone in to help, whether it's a consultant, an interim, or an advisor, don't just ask if they're good. Ask which level they actually work at. And then ask yourself: is that the level your problem lives at?