Don't start from here

In The Big Short, Michael Lewis sets out to understand why, in the run up to the sub-prime crisis, a tiny minority of investment funds went against the prevailing sentiment and actually bet on the bubble bursting.  Were they run by geniuses?  Was there some clever bit of analysis that they did, but everyone else missed?  Were their financial models better than their rivals’? The answer is both more prosaic, and more profound: they did their research.

While the biggest banks of the age were content to read analysts reports and accept without question the conclusions they drew, the mavericks went to California, to Florida, to the sprawling suburbia of middle America and talked to the men and women who were taking out mortgages.  Again and again they met people who had bought homes using loans they had no chance or intention of repaying; some made it clear that as soon as the preferential deal they’d got, which allowed them to live effectively rent-free for a period time, expired, they planned to post the keys through the mail box and walk away.  Returning chastened to their offices, the fund managers did the only logical thing: they bet against the market.

It’s very easy as a consultant to think you know what’s happening.  After all, aren’t we all talking to clients all of the time?  How could we possibly not know?  But the reality is that we all – consultants as well as fund managers – hear not only what we want to hear, but what we can afford to hear.  And because consulting is an intangible service it’s particularly easy to do this: hard data is difficult to come by and, like many fund managers, we rely on received wisdom rather than going to back to the original source.

The Big Short also highlights the extent to which research and analysis was based on what the supply side (fund managers, etc) thought – and that’s true in consulting too.  My concern is not simply that consulting firms, software vendors, et al have a substantial and obvious vested interest in the outcome so are likely to skew any data they provide in their favour: you could argue that, provided you speak to enough of these organisations, the bias of any one of them cancels the others’ out.  A much bigger problem is that they’re driving the questions that are being asked.  Too much research is an excuse to talk at clients and customers; not enough allows the latter to speak for themselves.  In other words, the purpose of primary research shouldn’t just be to get the answers to questions, but to work out what the questions should be.

I’m reminded of all this because October is when many consulting firms start to plan in earnest for the coming year.  I’m all in favour of planning but I find the extent to which firms’ plans resemble each other really quite staggering.  And this year, if anything, seems worse than most: like pre-crisis fund-managers, they’re taking their readings from their competitors, not from their clients.  Because doing your homework with clients isn’t just about finding out what’s right and what’s wrong, but about what you don’t know.