Hypothesis Creation: A consulting super-skill

Management consulting is an interesting field full of complex modelling, fact finding missions, research, collaboration and relationship management.

OR

It’s a complete sham full of people who are full of themselves, high bill rates, jargon words and expensive suits.

These are typically the two ends of a spectrum that contain the range of responses to the practice of strategy consulting. And in some ways, both are valid responses. In the sense that often times the work involved in consulting can come across as surface level and abstract. This is a factor of the kind of work that strategy consulting is — Knowledge work that does not show immediate results.

On the surface, it may feel like all consultants do is travel, make presentations, spreadsheets and use a host of planning tools. All to answer a business question that a company is struggling with. And sometimes, the answer was something that was already considered and discussed by the company’s leaders. So what’s the consultant’s ‘value add’?

A consultant’s value add

A consultant looks to produce a credible, structured and data-validated answer to a business problem that seems to be a pertinent challenge to the company. Our value add to start off with, is to first check whether the problem that the company says exists, is really the main problem to solve for our purposes. Further we add an unbiased, third person evaluative view to the problem which can be especially difficult for leaders and decision makers within the company. Lastly, our solutions are backed by numbers that matter and a business case which helps the company side step decisions that can lead to losses or costs that sometimes run into hundreds of millions.

At the heart of all the skills that a consultant brings to the table is the skill of creating a defensible hypothesis to the problem. Today, let’s take a deeper dive into this and really try to understand how one can develop this over a period of time.

What is a Hypothesis?

A hypothesis is a supposition or proposed explanation made on the basis of limited evidence as a starting point for further investigation. Most of us with a technical background in education would have worked on creating hypotheses for scientific problems or riddles in school or college. In fact you in your daily life hypothesize all the time. ‘Oh why is Sanjay late?’, ‘I think he is picking up Trina on the way’. ‘Why is the Indian economy crashing?’, ‘Well it’s a natural business cycle coupled with major policy changes like GST and the FPI surcharge’. What do both examples have in common? They are both hypotheses. Which means that of all the possible reasons for the two phenomena occurring could be myriad and wide ranging, but in my experience and knowledge base, the biggest reasons are these.

Well, the same first principle applies to business as well. A hypothesis is the best possible solution to a business problem that exists for the company right now. For example, a restaurant in Colaba, Mumbai used to make an operating profit margin on about $10,000 every night. They recently changed their operating timings from strictly dinner to lunch and dinner. Now their margins are $2,000. There could be a bunch of reasons for this: Their operating costs have increased drastically. A competitor opened a restaurant with a higher popularity rating nearby. The cost of mutton, the main ingredient of their most ordered menu item jumped 500%. There were repeated incidents of violence, i.e, revenue reduction. You get the drift. Out of all of these, based on my knowledge and experience I would put my money on operating costs and reduced revenue.

Why hypothesize?

In an academic study, the broad-based outline of the process is to have a problem, then start with a wide ranging set of possible solutions, use all quantitative and qualitative tools and techniques to progressively sharpen the solution over years and years of assessment to finally arrive at an answer. On the other hand, a consulting assignment/study is different. Apart from the obvious difference in the duration of the study, a consulting assignment starts with an answer to the problem, a hypothesis in hand. The rest of the study — quantitative research, qualitative study, business case is all to sharpen the answer and be absolutely sure of the solution before it goes for implementation.

This approach generally works well because of multiple reasons. Firstly, the fact that you are saving time is in itself a big value add. Often with business decisions, it’s more harmful to take a late decision, than taking the wrong one. A hypothesised approach helps you save precious time providing an edge to you and your client. Secondly, it helps you prioritise on the biggest problem. Pareto’s 80/20 law applied means that the top 20% of problems drive 80% of business value. By focusing yourself on a hypothesis, i.e, the biggest problems/drivers in a long list of possible drivers, you solve the biggest problems first thereby providing high impact and value to your client and the problem at hand.

Generating a credible hypothesis requires two critical things: Vast Experience & Incredible subject matter knowledge. Which is why generally in consulting firms, it’s an experienced Partner or an Engagement Manager that introduces the hypothesis. It then falls on the consultant to validate/invalidate and sharpen it as the project rolls along. For young consultants experience is something that will come from time. But knowledge can be gained. So if you want to get really good at it, you can study extensively. And practice hypothesizing and critically evaluating it to poke holes in it. Over time, you will get better!

Summary

• A consultant’s value add is defining the problem better, providing an unbiased, third person view to provide rigidly structured and validated solutions.
• A hypothesis is the best possible solution to a business problem that exists for the company right now.
• In a consulting study, it’s recommended that you start the assignment with an answer — the hypothesis, and then sharpen the same over time to propose the solution fully.
• A hypothesis based approach allows you to save precious time and focus on the biggest drivers to the problem.

So there you have it. Hypothesis creation: A consulting super skill. Apply it, play with it, practice it and like any muscle, it will become strong. Enjoy!

If you enjoyed this, you would also love some other essays I have written. Check out ‘If you’re not tracking it, its not getting done’, ‘Honey Acquisition’ and ‘How to start playing with Agile’. Follow me on @Slim_Snail for everything Marketing, Brand Strategy, Consulting and Strategy. Also, request you all to like and share it with your friends and colleagues. Thanks! :)