HAY’S 7-LEVER MODEL

FOR
MANAGEMENT CONSULTING

1
 The MODEL

People
Competence

Culture Reward

Strategic Leadership
Results
Intent
Work Management
Processes Processes

Organisation
Design
↓

Provides compelling Levers for organisational change Outcomes of change

case for change initiatives
- External
- Internal

2
 Leadership:
The ability of leaders to mobilize the organization around the strategy

People
Competence

Culture Reward

Strategic Leadership
Results
Intent Leadership
Work Management
Processes Processes
• Is there a compelling vision which
inspires the organization? Organisation
Design
• Are leaders creating clear
expectations of others?
• Do leaders eliminate obstacles and
clear the path?
• Is leadership walking the talk?

3
 People Competence:
The competence of people (individually and as teams) to carry out the strategy

People
Competence

Culture Reward

Strategic People Competence

Leadership
Results
Intent
Work Management
• IsProcesses
there a clear picture of what
Processes
excellence looks like?
Organisation
• Do you know what individual and team
Design
competencies are needed for success?
• Do you have an adequate talent pool?
• Is there a process to identify and learn
from superior performance?
• Have outstanding performers been
matched to pivotal roles?

4
 Reward: The financial and non-financial reward structures
that drive the desired behaviors

People
Competence

Culture Reward

Strategic Reward
Leadership
Results
Intent
Management
• Is reward structure
Work aligned with
Processes
strategy and Processes
culture?
• Is reward attracting and Organisation
retaining the
right people? Design

• Is reward focused on internal equity or

on performance delivered?
• Is there a clear tie between reward and
results?
• Does reward encourage or discourage
people to develop new capabilities?
• Do rewards rise and fall with
shareholder results?

5
 Management Process:
The key processes through which management influences people

People
Competence

Culture Reward

Strategic Management Process

Leadership
Results
Intent
• Have you identified
Workkey Management
Processes
management processes Processes
required? Organisation
• Are your key processes efficient
Design
and effective?
• Is there clear process
ownership?
• Are management processes
aligned with organization and
culture?

6
 Challenges for Management
in a Global Environment

• Increasing Number of Global Organizations.

• Building a Competitive Advantage.
• Maintaining Ethical Standards.
• Managing a Diverse Workforce.
• Utilizing IT and E-commerce.
 Building a Competitive Advantage
• Increasing Efficiency
• Reducing the quantity of resources used to produce goods
and services.
• Increasing Quality
• Introducing Total Quality Management (TQM) to improve
quality.
• Increasing Speed, Flexibility, and Innovation
• Adapting to bring new products to market faster.
• Increasing Responsiveness to Customers
• Empowering employees to deal with customers.
Building Blocks of Competitive Advantage
 Linking Strategy to Operations
- A Closed-Loop Management System
Stage 1

Develop the Strategy

Stage 2 Stage 6

Translate the Strategy Reassess the Strategy

Into Specific Objectives And Update it
And Initiatives of a
Strategic Plan

Stage 3
Stage 5
Plan Operations
-Map out the Operational
Plans and resources to Monitor & Learn
achieve objectives

Stage 4

Execute the Strategy &

Operational Plans

Source: R.S. Kaplan & D.P. Norton, “Mastering the Management System,” HBR, Jan. 2008, p.65
 Management Process:
The Glue that holds the organization together

EXTERNAL ENVIRONMENT: Organization Structure

Social, Economic, Political and the
Corporate Culture
EXTERNAL
ENVIRONMENT:
Technological

MANAGEMENT
PROCESSES:
The Organization’s
Planning, Technology
Strategy
Control,
Rewards

Individuals
Competitors Customers
and
Roles

Adapted from M.S. Scott Morton & J.F. Rockart, “Implications of Changes in IT for Corporate Strategy,” Interfaces, Jan-Feb, 1984
 Organizational Design:
The way in which accountabilities are organized and managed

People Organizational Design

Competence

Culture • Does the way resources are grouped

Reward
support the strategy?
• How effectively do people and teams
Strategic Leadership work together?
Results
Intent • Are jobs challenging?
Work Management
Processes Processes
• Does the structure efficiently support
the required work processes?
Organisation
Design • Is work performed where it makes
sense?
• Are roles correctly assigned and
clearly understood?

12
 Work Process:
The sequence of activities through which resources are
transformed to meet customer needs

Work Processes
People
• Have you identified key work processes
Competence
required to support the strategy?
Culture • Are Reward
your key work processes efficient and
effective ?
• Are organizational hand-offs effectively
Strategic Leadershipmanaged?
Results
• Is there clear process ownership?
Intent
Work Management
• Do process
Processes members understand overall
Processes process requirements?
• Are policies and technology aligned with
Organisation
Design work processes?
• Does information flow to where it is
needed, when it is needed?

13
 Culture:
The way in which the organizational norms support the strategy

Culture
People
Competence
• Do you know the values & behaviors
Culture
which support success?
Reward
• Is there a consensus around the
new value set?
Strategic Leadership• Does behavior match espoused
Results
Intent values?
Work Management
Processes • AreProcesses
there distinct sub-cultures
within the organization?
Organisation
Design • What is distinct about your culture?

14
 What levers in the organization offer
the greatest opportunity for impacting results?

People
Competence

Culture Reward

Strategic Leadership
Results
Intent
Work Management
Processes Processes

Organisation
Design

15
 Client’s Expectation(s)

• Independent viewpoint

• Special qualifications

• Realistic gains not just moving the wheels

 Organizational Appraisal

Organizational Capability Factors

• Marketing Capability Factors

• Operations Capability Factors

• Human Capability Factors

• Financial Capability Factors

• Information Management Capability Factors

• General Management Capability Factors

 Marketing Capability Factors

• Product-related factors: variety, differentiation, mix quality,

positioning, packaging

• Price-related factors: pricing objectives, policies, changes,

protection, advantages

• Place-related factors: distribution, transportation and logistics,

marketing channels, marketing intermediaries

• Promotion-related factors: promotional tools, sales promotion,

advertising, public-relations

• Integrative and systems factors: marketing mix, market standing,

company image, marketing organizations, marketing management
information systems
 Check Point: Marketing Capability

• Variety of products
• Quality of products
• Positioning
• Prices as compared to similar products in the market
• Price protection due to Government policies
• Quality customer services
• Effective distribution system
• Effective sales promotion
• Profile advertising
• Company and product image
• Effectiveness marketing management information
system
 Operations Capability Factors
• Factors related to production system: capacity,
location, layout, product or service design, work systems,
degree of automation, extent of vertical integration

• Factors related to the operations and control

system: aggregate production planning, material supply,
inventory, cost and quality control, maintenance system
and procedures

• Factors related to R & D system: personnel,

facilities, product development, patent rights, level of
technology used, technical collaboration and support
 Check Point: Operations Capability
• Level of capacity utilization

• Plant location

• Degree of vertical integration

• Sources of supply

• Effective control of operation costs

• Inventory control system

• Level of R & D personnel

• Technical collaboration
 CONSULTING STYLES

a) Objective Observer
b) Process Counselor (or Process Consultant)
c) Fact Finder
d) Resource Identifier or Linker
e) Joint Problem Solver
f) Trainer/Educator
g) Information Specialist (or Content Expert)
h) Advocate
 Human Capability Factors
• Factors related to Systems & Processes: SOPs, System for
manpower planning, selection, development, compensation,
communication, appraisal, position of the HR development within
the organization

• Factors related to organization and employees: type of system,

corporate image, quality of managers, staff and workers,
perception about the image of the organization as an employer,
availability of developmental opportunities for employees

• Factors related to industrial relations & statutory conditions

for employees: Organizational Ergonomics, Union management
relationships, collective bargaining, working condition, safety,
welfare and security, morale, employee satisfaction
 Check Point: Human Capability

• Genuine concern for HR and development or facade

• Efficient and effective SOPs
• The organization is perceived as a fair and model
employer
• Learning opportunities and facilities
• Congenial working environment
• Motivation level of workforce
• Level of organizational commitment not loyalty
• Level of absenteeism
• Safe and salutary working conditions
 Financial Capability Factors

• Factors related to sources of funds: Capital structure,

Procurement of capital, Financing pattern, Working capital availability,
Borrowings, Capital and Credit availability, Reserves and Surplus, and
relationship with lenders, banks and financial institutions

• Factors related to usage of funds: Capital investment, fixed

asset acquisitions, current assets, loans and advances, dividend
distribution, and relationship with shareholders

• Factors related to management of funds: Financial,

accounting, and budgeting systems, management control system, state
of financial health, cash, inflation, credit, return and risk management,
cost reduction and control, and tax planning and advantages
 Check Point: Financial Capability

• Access to financial resources

• Relationship with financial institutions

• Level of credit worthiness

• Capital budgeting system

• Cost of capital as compared to competitors

• Level of shareholder’s confidence

• Management control system

• Tax benefits due to various government policies

 Information Management Capability Factors

• Factors related to acquisition and retention of

information: Sources, quantity, quality, and timeliness of
information, retention capacity, and security of information

• Factors related to the processing and synthesis of

information: Database management, systems, software
capability
 General Management Factors

• Factors to the General Management System: Strategy

Formulation, Implementation, Evaluation, Strategy
evaluation system, management information
 Consultant's DILEMMAS

 How does the consultant make a difference in the production of data?

 What does the consultant do to retain the “voices of participants”?

 What role should the consultant' take? Onlooker, Participant or

Observer?

 Does he need to keep a check on his/her biases?

 Will the consultant be able to represent the ‘true’ version of accounts?

 How does one ensure validity and reliability of the investigation?

 Can consultant unmask his emotions while interacting with participants?

 Are there any established standards of data processing?

 Can this study persuade the readers of its worthiness?

 The Disadvantages of using Consultants

It is expensive

Desired results are not guaranteed

It may create bad vibes amongst

employees

Projects and issues may blow up out of all

proportions 30
 How do Consultants charge for their services

 Per Hour or Per Day basis

 Retainer basis

 Fixed-price assignments

 Performance-based fee (Contingency Fee)

31
 Contingency fees

A client complained that he couldn’t afford a consultant’s

hourly fee.
‘Instead of doing the job on a time and material basis, I’m
willing to do it for a contingency fee,’ responded the
consultant.

‘What is contingency fee?’ asked the client.

‘It’s very simple. If I don’t deliver what I promised, I’ll be left
with no money at all,’ explained the consultant

‘What if you do deliver what you promised?’ persisted the

client.
‘Then you’ll be left with no money at all,’ said the consultant.
 How consultants market their services?

 Membership of community organizations and professional

institutions

 Publishing books and articles

 Networking with other consultants

 Speaking at seminars, conferences and other gatherings

attended by both clients and consultants

 Word-of-mouth advertising – recommendations from

satisfied clients
 Definitions

Outsourcing consists of two important dimensions

Outsourcing

Transfer of the function

Decision to outsource and/or activities to an
external supplier
 Rationale for outsourcing

Strategic reasons 1. Improve company focus

for outsourcing 2. Gain access to world class capabilities
3. Get access to resources that are not available internally
4. Accelerate reengineering benefits
5. Improve customer satisfaction
6. Increase flexibility
7. Sharing risks

Tactical reasons 1. Reduce control costs and operating costs

for outsourcing 2. Free up internal resources
3. Receive an important cash infusion
4. Improve performance
5. Ability to manage functions that are out of control

All these reasons underlie one overall objective: to improve the overall
performance of the outsourcing firm
 Rationale for outsourcing
Advantages and disadvantages of outsourcing

Advantages Disadvantages

Freeing up of cash: investments can be Increased dependence on suppliers

concentated on core activities

Optimal usage of knowledge, equipment and Continuous follow-up and monitoring of the
experience of third party supplier relationship necessary

Increased flexibility: fluctuations in the workload Risks of communication and organizational

can more easily be absorbed problems during the transfer of activities to a third
party

Outsourcing leads to easier and more focussed Risks of leakage of confidential information
primary processes in the organization

Input through an independent party’s point of view Performance incentives and penalties
which reduces the risks of introvert short-
sightedness in the organization

Risk of losing essential strategic knowledge

 Success of outsourcing
as a business strategy

Determining the success of outsourcing is very difficult

• External factors in the before and after situation may have changed
• Often impossible to determine the costs of the function before it was
outsourced
• Outsourcing is often poorly evaluated to data is just not available

The success of outsourcing as reported by various reports varies

enormously. However, most reports conclude that outsourcing projects
in more than half of the cases do not seem to produce the results that
were expected from them.
 The outsourcing process

Strategic phase Transition phase Operational phase

Competence Assessment Contract Project execution Managing Contract

analysis & approval negotiation & transfer relationship termination
 The Strategic phase

Three main questions in the Strategic phase

• What is the motive to outsource?
– Focus on core competence?
– Focus on efficiency / effectiveness?
– Focus on service?

• What activities are candidates for outsourcing?

– Transaction cost approach (Williamson, 1983; Arnold, 2000)
– Core competence approach (Quinn and Himler, 1994)

• What qualifications should a supplier require?

– Supplier selection process (Momme, 2002; Wynstra, 2002)
– Monitoring practices in supplier partnership
 The Transition phase
Different outsourcing contracts
Lump-sum turnkey Contract is based upon a fixed price (per period) for executing the project or a certain
activity

Reimbursable turn-key The provider is compensated for all costs that he incurs for executing the project or a
certain activity

Semi lumpsum turn-key Part of the work is compensated on a fixed price basis; the other part is compensated
on a reimbursable basis

Lumpsum fixed price The supplier agrees to complete the work against a fixed price based upon a
predefined, detailed scope of work. Everything that is not included in the scope of
work is settled between parties on an ad-hoc basis

Cost reimbursable The supplier agrees to complete the work on open book, open cost basis based upon
a general scope of work. There is no sharing of savings

Guaranteed maximum The same as a cost reimbursable contract, only the outsourcer pays to a certain
contract agreed maximum. The extra costs are for the supplier

Share the savings / loss The services are paid for on a reimbursable basis. When the contract costs are higher
(target price contract) or lower than the original budget (target price), the difference is shared between
parties on a pre-agreed basis

Unit rate Rates are agreed for regular, routine activities, the size of which cannot be
anticipated. Rates are defined per m2 of paint, meter of cable to be installed, etc.
Payments are made based upon actual use.
 The Transition phase

• The type of contract is just one of many issues

• Other ‘ingredients’ in an outsourcing agreement are:
– cope of services
– Term of agreement
– Service level agreement (SLA)
– Rates, fees, incentives, penalties
– Termination plan
– Conflict resolution
– Communication
– Management and control
– Other (e.g. warranty, confidentiality, audit rights, etc.)
 The Transition phase
• Outsourcing transition can be very complex

• The transfer should be conducted using project

management principles
• Assignment of a dedicated project manager by
• Sound transition plan
• Project timeline with milestones

• Test phase before going ‘life’

• Outsourcer should provide training and support to provider

if necessary
 The Operational phase
• It is in the operational phase that the outsourcing will deliver its
expected results
• Successful outsourcing depends heavily on close cooperation with the
supplier
• McQuiston (2000) identifies six core values as being critical to a
successful outsourcing relationship

Core values Supporting factors

Shared goals and objectives
Mutual dependence Developing a personal relationship
Open lines for communication Having professional respect
Concern for the other’s profitability Investment of effort by top management
Mutual commitment to customer Commitment to continuous improvement
satisfaction
Trust
 The operational phase
Risk assessment
–

• In cases where trust and interpersonal relationships are not present,

parties try to arrange for dealing with these risks and uncertainties by
detailed outsourcing contracts

These contracts are associated with the following kinds of risks:

• Technical risks: related to the extent to which the supplier is able to provide
the desired functionality and performance
• Commercial risk: related to the uncertainty with regard to the price we will pay
and the costs that we will incur when having outsourced our activities to the
supplier
• Contractual risks: e.g. does the contract in sufficient detail describe the
performance that is expected from the supplier?
• Performance risks: related to the chance that the supplier is not capable of
doing the job he was hired for.

• Many authors have pointed out that in dealing with these risks,
detailed contracts will not solve the problem. Trust and partnership are
more important.
Critical success factors of outsourcing

• Understanding company goals and objectives

• A strategic vision and plan
• Selecting the right vendor
• A properly structured contract
• Open communication with the individual groups involved
• Ongoing management of the relationship
• Senior executive support and involvement
• Careful attention to personnel issues
• The way the company is strategically positioned vis-à-vis its
supplier. Can it still exert some control over its supplier, or not?
 Excerpt from “The Indian Perspective on the Offshore Outsourcing
Scene: The Good, The Bad, and The Ugly”

Almost 25 years ago, when the IT ‘revolution’ was yet to start in India, the
fresh graduates had very few job options – only in government organizations
and public sector organizations. Thanks for the IT outsourcing industry,
today’s opportunities for the fresh engineers are extraordinary. And, every
graduate, irrespective of his/her major, is opting for a career in IT. That is no
surprise, when an engineer with 2 years experience gets more salary than the
Professors who taught him.

In many other countries, while the reasons for lesser enrollment of girls in
computer science are being probed, in India that is THE field of choice for
majority of the girls. A visit to any computer science classroom shows that
almost 50% of the students are girls. It is a welcome trend; the parents of
girls are encouraging their daughters to take up computer science stream as
the jobs are “soft.”

(from ubiquity.acm.org/article.cfm?id=1295280 by K.V.K.K. Prasad. July, 2007. )

Excerpt from “Socio-behavior & Cultural Impact of Outsourcing on Indian Youth”
by M. S. Balaji & Diganta C, ICFAI Institute for Management Teachers, Hyderabad.

Adapting to the American way of living has become a reality for many working in an Indian call
center …[The] process of Americanization includes training for three to six months, learning the
accent, slang, lingo, sports, history, geography, films and politics. Some companies provide
speech therapy so workers can sound like an American. The employees watch endless episodes of
Friends, Seinfeld, Oprah…

This process of Americanization has resulted in number problems for call center
employees…Many are finding it difficult to find a common ground between the two cultures and
identities - Indian and American…The remaking of Hari into Harry for the convenience of the
American customers involves severe personality costs, as the person's name is vital to his or her
identity, self-esteem and dignity.

On the social side, the most significant impact of call centers has been on the families of the
employees. First, it is creating an entirely new segment of Indian youth who are being slowly
alienated from the Indian culture and values. Also, it offers an opportunity for the employees to
live a perpetual nocturnal life. They have little time to spare for their family members. They no
longer get involved in the family get-togethers or marriages or festivals.
Excerpt from USA Today, “Why Small Business Must Hire Offshore,”
vol. 133, December 2004

As the costs of starting and operating a company in the United States have
increased, it has become difficult for small companies to compete in the global
marketplace. As a means of survival, many small companies have looked to
outsourcing as a way to cut costs and increase efficiency in their businesses.
Outsourcing provides small firms with an excellent way to save money and
become more profitable. The efficiency enabled by outsourcing also makes
these companies more attractive to investors, thus helping them grow even
more. As highly educated workers in India command much lower salaries
than do U.S. workers, outsourcing has become an attractive alternative for
small companies looking to get ahead. The benefits to American companies
from outsourcing can be huge, but for many small companies outsourcing is
simply a matter of survival.
 Excerpts from “Offshoring of White-Collar Jobs Is Shifting the Global
Balance of Power” by Ashutosh Sheshabalaya

The relocation of white-collar technology jobs out of the West is a powerful

undercurrent in today's globalizing world economy. One study by American consulting
firm Forrester Research estimates that such a process could send 3.3 million
American jobs overseas by 2015…A leading American business journal Fortune
comments that, unlike other wannabes across the world, Bangalore's claim of being a
new Silicon Valley had "an eerie ring of truth." More now than a ring; a Business Week
cover story at the end of 2003 stated that Bangalore had surpassed Silicon Valley in
high-tech employment; it also reported that Indians were taking the lead in "colonizing
cyberspace”…Writing in October 2003, a columnist in the Washington Times takes
[the] concern further: "If you want to see a real weapon of mass destruction, try a
$1,000 computer in Bombay. High-tech jobs in the computer industry are bailing out of
the United States. Fast.”

(From Rising Elephant: The Growing Clash with India over White-Collar Jobs and Its
Meaning for America and the World. Monroe, ME: Common Courage Press, 2005.)