Diagnosis

Box 8.5 Difficulties and pitfalls of causal analysis

●Cause and effect. Frequently conditions are observed that influence each other and there is a risk of mistaking an effect for a cause. A typical example is the relationship between poor staff morale and low performance of the organization. Is poor staff morale a cause of low business results, or do low results depress the staff and lower morale? If a static view is taken, these conditions influence each other, and there may be a vicious circle; but which condition is the cause of the other?

●Basic or primary cause. Suppose that the consultant establishes that falling sales and profits are the cause of low staff morale. What then is the cause of the poor business results? The consultant finds out that it is the loss of an important foreign market. But why was that market lost? It was lost because of a serious mistake in pricing policy. Why was that mistake made? And the exercise goes on… In diagnosing business and management problems, consultants face chains of causes and effects. The issue is how deep and how far to go in looking for basic (or primary) causes. Here again, it helps to keep the purpose in mind. The consultant will have to consider one cause as basic, even if it is only “relatively” basic. As a rule, it will be one on which the client will be able to act. The consultant will thus be able to propose solutions that will address fundamental causes, without suggesting the impossible.

●Multiple causes of one effect. A problem frequently has two or more causes, although one of the causes may be more important than the others. This is often observed in personnel problems (a manager’s behaviour and performance are affected simultaneously by problems encountered in the office and at home), or in organizational problems caused by parallel but independent events (e.g. a change in foreign-exchange rate and retirement of an outstanding marketing manager).

●Multiple effects of one cause. The opposite also happens frequently: one condition is found to be the cause of a number of effects. For example, the existence of a political or ethnic clique in an organization can be the cause of numerous personnel, managerial and performance problems.

●Cause or culprit? The temptation to designate a person responsible for the existence of a problem may be strong. While this may be inevitable in instances of flagrant mismanagement or personal irresponsibility, in most situations it will make the identification of a real cause more difficult and resistance to change will increase.

Only rarely would a consultant face a situation in which an unusual causal relationship would be discovered. But it may happen; for example, a consultant from an industrialized country working in a developing economy may discover causal relationships between certain cultural factors and the economic performance of an organization which are unknown to him or her from previous studies and work (such as different causes of absenteeism, or ethnic factors affecting the distribution of roles within a factory).

203

Management consulting

oriented proposals. It is particularly in this connection that comparison turns to examples, models and standards from outside the organization and even outside the sector or country. The consultant should consider whether the diversity of conditions permits such comparison, especially if it is to be used for more than general judgement – namely for specific suggestions to the client as to what he or she should do.

Interfirm comparison is often used to assess global performance indicators against comparable data from other firms, or against sector standards. Benchmarking is a more analytical technique, which focuses on specific processes, operations and functions within organizations. It has been used by many firms to identify standards achieved by other organizations collaborating in the same benchmarking project or scheme, compare experiences and conditions, and develop specific proposals for improvements (see also section 20.3).

Analysing the future

Owing to its focus on action and improvements, all consulting work must be essentially oriented to the future. Whether the client is struggling for survival or is a highly profitable company looking for new business opportunities, the key questions will always be: what will be our future opportunities? What shall we do in the future to achieve our purposes? Shall we focus on correcting past errors or shall we take a completely new path?

This future orientation gives a particular slant to data analysis. Consultants have to collect or establish data on a situation that does not yet exist, in addition to collecting data on existing realities. They have to assess these data and recommend desirable courses of action that the client should take.

The future is, of course, related to the past and the present. Many future events and relationships can be predicted. It is therefore essential to analyse trends in data describing the environment and the organization concerned. All consultants are interested in trends, whether the assignment deals with business strategy or with a narrower technical problem such as simplifying or automating production records.

Unfortunately, the most common approach to future-trend analysis is simple extrapolation. We tend to think of the future as a mere extension of past trends, because we are unable or unwilling to consider what new developments may alter them radically. In periods of rapid technological, social and other changes

– and we are living in one such period – it is normal for past trends not to continue into the future without substantial alterations.

Data on future trends collected from various external sources of information have to be examined cautiously and their reliability assessed. For example, a consultant working for a client enterprise with highly energy-intensive production processes obtains information on new power-generating capacities in construction, on their planned completion dates and on foreseen changes in the price of electricity. He or she should take into account that new power plants can be years behind schedule, that their actual cost is often higher than the original projected cost and that the price of energy will depend on many variables, including the government’s tax and regulatory policies. How will this affect the

206

Diagnosis

future development structure of costs in a client organization which is a major consumer of electricity? It may be necessary to develop alternative plans and estimate with what probability they are likely to become a reality.

Future developments within the client organization will also be affected by environmental changes. For example, in analysing the time dimension of a product life-cycle it is necessary to consider whether the curve which is usual in a given sector applies, or whether progress in technology imposes the use of a different curve, as has been amply documented by the pace of change in information and communication technologies.

The same applies to ratio analysis. Some ratios may become less important or even meaningless. In retail selling the ratio of sales per employee retained its meaning with the transition from small shops to department stores, supermarkets and self-service stores. However, it is losing its meaning with the advent of automatically controlled sales surfaces if even the cashiers are replaced by electronic control and billing equipment. Ratios such as sales per square metre of selling surface, or sales per $1,000 of invested capital, become more significant. In general, ratios permitting the assessment of total factor productivity are becoming more important than labour productivity ratios.

Synthesis

To a management consultant, analysis and synthesis are two sides of one coin. As data analysis is progressing, the consultant’s approach will increasingly involve synthesis – identifying basic relationships, trends and causes, differentiating between fundamental and secondary events and factors, and defining conditions that have to be changed if a whole process or organization is to change. In particular, the consultant operates as a synthesist when looking ahead and helping the client to define an action programme for the organization.

Synthesis is considerably more difficult than pure analysis. Many bulky analytical reports, often based on vast numbers of facts and defining long lists of problems, are difficult to use because they lack synthesis. Key conclusions are not drawn and key measures are not identified. As all the measures proposed cannot be introduced at the same time or with the same vigour, action starts in a haphazard way or is soon abandoned.

Effective synthesis is probably one of the main things that a new management consultant has to learn. Of course, consultants are not the only people who may have problems with synthetic thinking and using the synthetic method effectively. As Alvin Toffler has pointed out:

Our civilization placed an extremely heavy emphasis on our ability to dismantle problems into their components: it rewarded us less often for the ability to put the pieces back together again. Most people are culturally more skilled as analysts than synthesists. This is one reason why our images of the future (and of ourselves in that future) are so fragmentary, haphazard and wrong... Today we stand on the edge of a new age of synthesis.8

207