The Use Case Podcast: Storytelling about Mitchell Madison Group with Hans Dau

William:  00:25
Ladies and gentlemen, you’re listening to the use case podcast. My name is William Tincup, I’m happy to be here. I’m going to be speaking with Hans and he’s he represents the Mitchell Madison group, which is MMG, and we’ll refer to it as MMG from here out, but he’s going to explain the firm, talk a little bit about what they do and the problems they solve, et cetera, and the use case that practitioners should make for working with them. So Hans, do us a favor and introduce both yourself and MMG.

Hans:  01:00
Sure. Well, thank you so much for having me on your podcast. I really appreciate it. Mitchell Madison group is a general management consulting firm that I have owned and operated for quite a while now.

We’re in our 26th year of existence and as a firm, we have done primarily what’s called performance improvement and it’s a subsegment of management consulting that deals with operational optimization and things to do to corporations, but also to public entities and governments, that show real measurable improvements in terms of financial performance, right? So, you make more money, you have higher revenue, you have reduced costs, you have better operations.

Hans:  01:47
So, I would say that focus is a little bit differentiated from what consultants are sometimes made fun of, which is blue sky, great ideas, strategies. So, we typically take a client’s market position and a client’s strategy as a given and we optimize around that, rather than coming up with brand new, pie in the sky type strategies.

And that’s been very successful for us and our clients. So, I like that type of approach. I personally have been in management consulting for pretty much my entire career. I have a degree, a MBA from Dartmouth and have jumped into consulting more or less right after that because I couldn’t think of something else to do and I got stuck there and I really enjoy it.

William:  02:34
So, the performance improvement, obviously you can cut that in a lot of different ways. How do y’all deal with the people part of performance improvement, right?

So, you can make machines and you can make process, you can do all kinds of different things to make the overall company’s performance improvement and a lot of people are going to look at the bottom line and the net of everything and it’s improved or it’s not improved, but as it relates to people and what you’ve seen through your almost 30 years of doing this, how do people approach performance improvement correctly, in your opinion, when it comes to their people?

Hans:  03:21
Yeah. I’m glad you’re asking that question. That’s actually one of the origins of our approach that’s distinct from what the whole industry has been doing for many, many years, which is the first thing consultants do, which is why they have such a horrible reputation is cut people, like automate, cut people.

I don’t think there’s many people in an organization that are happy to see a major consulting firm show up, typically instills fear and fear of change or being fired and all those kinds of things. I think that reputation is well deserved. Like I said, 26-7 years ago, we approached this from a different angle.

Hans:  04:03
We said, “listen, why don’t you…” And worked for many, many big companies, “Why don’t you, rather than looking at doing the same with fewer people… people are part of your organization. Those are human beings that you should care about. What about the people that sell into you, your suppliers?

While you should care about them as well, you probably should care a little bit less about them. So, before you touch anybody and change their job or lay them off or whatever, why don’t you make sure that what you’re buying from the outside is absolutely optimal because that is where a global market exists and that is where you should look for value first.”

Hans:  04:44
And so, a big part of what we do in performance improvement is called strategic sourcing. And we just make sure that any dollar that’s spent inside an organization that is not going to people and also technically not going to finance bond or shareholders, which is essentially a purchase, is optimized. And what we found is that, especially in service industries, many, many things that are in fact purchased are not viewed as such, right?

Hans:  05:17
So, everybody thinks the purchase is buying office supplies, but it’s also hiring a law firm. It’s hiring a PR firm. It’s hiring all kinds of special services. And so, what worked in our favor is that the trend towards buying things from the outside, rather than making it on the inside, right?

So, this very, very long transition from the Henry Ford River Rouge massively integrated factory to the Hollywood model where every product is a project that’s getting assembled, has resulted in a lot more purchase transaction [inaudible 00:05:51] taking place that were not optimized. And the reason they weren’t optimized is that a good mental model or a taxonomy didn’t exist for dealing with this, right? So, the taxonomy and I don’t want to get too technical here, but people were very good at buying stuff you can drop on your foot, right?

Hans:  06:08
So, it’s a part, you can describe it, but how do you deal with buying advertising agency services? How do you deal with all these creative things? And we developed approaches around that to deal with that that were very successful and that really was a big factor. But I think there’s more to your question.

There’s also the question of… because you can answer this two ways. The other question that I see and I think on this way is there’s a HR component now that people are being purchased… essentially, people based services are being purchased that used to also be inside the organization, right?

Hans:  06:50
So now you have a lot more contingent workforce that’s becoming more normal, right? And so, this idea of treating people that are on your payroll differently from people that are coming from an outside vendor that are contingent, there’s largely legal differences, right?

But should you be managing those different workforces completely differently? And what decides that, right? That’s the thing that we’re really focused on right now, because post pandemic with remote working being totally acceptable and all these different models emerging, people are saying, “Well, what difference does it make of that person is on my payroll or not?” Or “How do I deal with that?”

William:  07:30
What’s interesting, as you’re talking about it, it’s looking at talent for HR leaders and even the C-suite, looking at talent as a portfolio and in saying, seasonal, full-time, part-time, insourced, outsourced, contingent, freelance, whatever you want to… how do they make those decisions or how do you help them make the decisions on what that portfolio should look like?

Hans:  07:59
Yeah. I think most companies have a good sense of what core competencies and what type of skills and needs on a permanent basis or semi-permanent basis, given all the mission critical items, obviously incentive structures, people having stock options, those kinds of things. I mean, those are really important contributors to company success, they have to be on the payroll. And this is a different kind of pact that they have, but contingent workforce is approaching in some sectors, 50%, right?

Of the workforce, but is dramatic. And I think the change is a little bit more on how do you manage the contingent workforce better? And I think what’s happened there is that there is an emergence of information, right? There’s the fact that you can now pretty much figure out what exact skill level requires what pay in both location.

Hans:  08:53
And that you’re now free to source it globally or multi-regionally, given… ignoring making licensing requirements and things like that. But by and large, in the past, you had to hire somebody in a particular position and funny enough, in our business, in management consulting, where you travel so much, we never did this.

We said, “I don’t care where you live, as long as you live by an airport.” Right? And I think this mentality is creeping into more traditional companies and you have to really think about, “Do I care where they work? How do I manage that? How do I balance that?” But I think where we’re trying to play a bigger role is, is data available? You can get data about… for very narrow skill sets for understanding how the person’s performed in prior jobs and so forth. What is the right compensation for that person?

William:  09:49
I love that you went to the efficiencies part of contingent. I wanted to ask you because this is where consulting firms actually do great work, is they can bring in new ideas, maybe ideas that maybe had been bounced around inside the organization, but they can bring in new ideas and then say, “Hey, listen. Here’s what we’re seeing with contingent. Here’s what we’re seeing with people that are gaining some efficiencies in working with contingent and here’s how to manage them effectively.”

William:  10:21
So, I know you run into this occasionally, but people that are maybe are reluctant to change their talent strategy or their people strategy, but you just see it in the industry that they’re in, that it’s changing and whether or not they change or not, that’s not the issue. How do you bring them over to understand the efficiencies that can be gained and how they can manage that to more of an optimal level?

Hans:  10:48
Yeah. It’s a really good question. We started with that as well. I think that the approach that we take is data. You’ve got to have data, right? And so, as a consultant firm, you are really only exposed to episodic data. You do an event for a company, try to optimize some of it, you have a snapshot in time and we did not think that that was good enough on the workforce side.

And so, we partnered with a company called PRO unlimited, which is one of the leaders in workforce management and they’re not a temp agency. They’re a vendor neutral intermediary where big companies go and have the contingent workforce needs met. And then, they tell them, “I want to get them from this source themselves.” So, they find the people and they say, “Just please manage them for me.”

Hans:  11:36
And what this company now has is an incredibly deep database and intelligence around what these people cost and what they’ve done and what skill levels they have, right? Because the problem in any kind of labor, intermediate or not, is that you’re dealing with productivity issues, right? You want to know, does this person not only deserve that type of pay rate, but what am I actually paying for?

Hans:  12:06
What we found a lot in our clients is that the amount of time spent on specifying a contingent labor person correctly is not the same as in a permanent person, but it should be, given the importance. So, for example, we find a ton of over specification on the contingent labor side, right? Because a temporary person comes in and everybody loves them.

And then, they stay forever, as long as they legally can. They’re really, really expensive and the reason is they’re fundamentally overqualified, right? Because the provider has always had an incentive, because they’re getting paid as a markup, always has an incentive to over specify the person. So, you’ll have even in very mundane, light industrial, clerical jobs you have, in most organizations, the best receptionist you’ve ever had, it was probably a temp. It was also the most expensive one.

William:  13:06
So, because you’re dealing with… you’ve got insight into all of your clients, you’ve got insight into workforce issues and initiatives, right? So, I want you to give us some insight into pandemic, what you saw and or seeing. Technically, we’re still in a pandemic. And [inaudible 00:13:24] you think is going to be right around the corner, post pandemic, as it relates to what people are going to be dealing with when they deal with their workforce, both initiatives and issues or challenges, et cetera.

Hans:  13:36
Yeah. I want to keep it specific to the workforce, right? Aspect of it, because there’s other many, many other aspects. So, I thought this was really fascinating in the pandemic because it reminded me of a forced trial experiment, right? You had to work remotely, so you made it happen, right? So it’s just no questions asked.

So, we basically crammed many, many years of S-curve adoption into a matter of months, right? And it just had to be done. And then, people figured out, “Hey, I’m being forced to work from at home. I actually like it” Or not, whatever, right? But it’s been enabled, it’s acceptable and it’s pervasive, it’s in every industry and it’s here to stay. And I think this is going to be absolutely fascinating implications to that. I think some of them are totally obvious, right?

Hans:  14:25
How do you manage this hybrid remote in-person workforce? I think there’s no simple rules. I mean, I heard a lot about people talking about well, creative people and teams that work together, blah, blah, blah, and all this very simple rules. I don’t think they work. I think there’s a human dimension where there’s just people that can’t do it.

There’s people that can’t do it and there’s people that love it and there’s kinds of jobs where it’s acceptable and there’s other kinds of jobs where it’s not acceptable and smart employers will not just view this from a perspective of what’s best for me, but also really almost from a psychological basis, what is best for the type of person that I’m hiring and workers have to just say who they are. They have to say, “Look, I’m not a remote kind of guy. I won’t function this way.” Or they’ll be unhappy, right?

Hans:  15:13
So, I think that’s one element. I think there’s going to be absolutely fascinating second order consequences of this remote working, right? One of them being this idea of health insurance, right? And nobody has looked at this yet. Everybody knows that there’s healthy cities and unhealthy cities, right?

There is a vast difference in healthcare cost, right? What is the procedure actually cost location by location? I think that’s been reported. There’s been a lot of data released from Medicare, a lot of data released under the… I think it was the Trump initiated healthcare transparency law or executive order, where we can now see what is the cost for a knee surgery in this county or this county. Massive differences, but then there’s also the element of massive differences in utilization, right?

Hans:  16:03
There is just a different type of health behavior in New Orleans versus Boulder, Colorado, right? I mean, you just can’t deny that. And so, as companies deal with this contingent workforce, there’s going to be some very interesting healthcare cost implications and differences that you can exploit.

You can say, I would like to… if I really don’t care where somebody lives, well, maybe it makes sense to hire somebody who lives in a place that has traditionally very low health utilization costs. It’s just very interesting. It probably had lots of legal challenges by the way, as we’re looking into this. So, I think those are two elements that are pretty important that we have to figure out.

William:  16:54
First of all, I love both, but the second one, as you mentioned, I haven’t heard people talk about it as much in terms of… we tend to listen to the favorite cities, the list of… here’s the 15 favorite cities in the US let’s say, and that’s great. That’s based on some growth and things like that, but when you get down to cost of living and the cost of healthcare and utilization of healthcare, I think you’re peeling back some really interesting things.

And again, if people can live anywhere, it’s probably important for them to know those things too, [crosstalk 00:17:36] to be able to make good decisions or great decisions on where they should live. Let me ask you some buying questions real quick. One is, consulting used to be sold in terms of, here’s a problem, solution, timeline, deliverables, and budget and things have changed, obviously. So, how should prospects buy consulting from y’all?

Hans:  18:05
So, I think it should be outcome oriented, right? I think if you are a smart client, you want to be very, very clear on what kind of deliverables you get from a consulting firm. And again, my own perspective is that I tend to… my firm tends to do things that are measurable, right? So, if it’s measurable, you should find a way, a smart way of holding the consultant accountable for those results.

And that sometimes… I really lived this, we’ve done, I would say about 75 to 80% of our work is contingency success debased. And if you’re smart about it, the way you structure it, you align incentives, then it’s a wonderful way of working with a consulting firm. Sometimes, it doesn’t work very well in certain situations because it’s hard to measure or you don’t want to spend all your time measuring or it creates maybe conflicts of interest, but if you’re smart about it, then it’s the right way to do it. Hold your consultant accountable for results and pay them accordingly, but also be prepared to pay more if they do deliver really good work, right?

William:  19:07
Yeah. That’s not alignment of interest, right? So, you basically say, “Okay, whatever the outcome is, we want to hit that outcome.” Now, if we don’t hit that outcome, there’s a punishment if you will. But if we overachieve, then there’s a reward. And again, that incentive, that aligns everybody’s interest.

Hans:  19:32
The one thing that, well, you probably know this, but there’s been a really shift the last 10 years in the major consulting users becoming investors, right? So, you have a lot of consulting work is being consumed by private equity firms and venture capitalists and people that have very sophisticated users and that are [inaudible 00:19:53] services and they’re also large scale users, right? They concentrate some of the market share a little bit, but they also work on multiples, right? So, that’s one thing for a public company…

Hans:  20:04
Let’s say you’re a couple of public company CEO or CFO, and you want to hire a consulting firm. There’s political dimensions involved. What if they’re really successful? Does that make you look bad? What do my shareholders think? I should’ve done this myself. In all these considerations, when you have a PE firm or an investor hiring a consulting firm on behalf of one of their companies, all they think about the multiple, right?

So, they don’t care if Hans from Mitchell Madison saved them $10 million. [inaudible 00:20:30] No, they see $10 million, they’re slapping a 20 multiple on it. They just got $20 million richer, right? That’s how they think. So, a lot of this stuff has made my work easier because I now deal more often with extremely motivated customers that also are less involved in the politics of these types of projects, which is great.

William:  20:56
Yeah. The politics, it can be… you could have a great project and just the politics choke the life out of the project. [inaudible 00:21:04] to create the great outcomes, et cetera, and just politics getting away. I love the alignment. And again, I was going to ask you, how should your prospects and your customers gauge success? You went there early in terms of you really focus on things that are measurable, which helps because then, everybody’s staring at the same number. It’s like, “All right. We’re good.” We’re focused on that.

Hans:  21:33
I think the key is and this actually came from a former client of mine, it was a company called Windstream, a communications company and the CFO at that time, who’s now the CEO has… we did a contingency project with them and he insisted that everybody that works with our company is on the same incentive plan as we are, which I thought was brilliant, right? So, we got paid a certain way and percentage of this and that and he established a bonus pool for anybody who touched the project was paid exactly the same way. And that made a massive difference in that type of work.

William:  22:10
I Love it.

Hans:  22:11
Yeah, they’re really, really smart.

William:  22:13
Last thing that I’d love to ask you is, especially first time buyers, if they’ve never bought consulting, especially this type of consulting, what questions should they ask you?

Hans:  22:33
So, I think what they should do is honestly just ask us for a free assessment, right? So, what we do specifically around these performance improvement projects, we don’t want to be involved in something that has no chance of success. So, we never sell anything that we think we can’t deliver, right? So, what we do is we engage the client in a diagnostic phase where we get some basic data from the company. We analyze it. We don’t charge the client for that.

And then, we sit together and say, “Listen, here’s what we found. Here’s how we would prioritize the opportunity that we found, in terms of how much opportunity is there for improvement, how much difficulty is in implementation, how much risk, how much expense we [inaudible 00:23:14] the work [inaudible 00:23:15].” And then, we say, “Look, it looks like there’s a certain amount of money efficiency value to be had. How do we divide it up?” And then we would go.

Hans:  23:24
So, I think it’s mostly around, we practice what we preach, right? We use data and we use real facts and information to make our case. In general, I would say when you work with a consulting firm, the most important thing to do is to make sure that the person that impresses you in the sales process is also very close to doing the work, because that’s the classic complained about, at least the big consulting firms, because that’s what they do, right?

They have fantastic senior partners and they show up once every other month, right? And then, people that are in their 20s doing the work who may not even be in this country. So, I think… most people know that, but I would say that working with a really large consulting firms, I think that’s still something I would look for.

William:  24:18
Yeah. I say this in software as well. You want to meet your implementation team before you sign the contract. It’s similar in consulting as you just want to know, “Okay, listen. We all agree in terms of what we’re going to do. We agree on how we’re going to measure it. Now, whom is going to be involved and how are they going to be involved?” And I think if prospects ask those questions, then they have a chance of then really understanding the dynamics behind the veil.

Hans:  24:50
And by the way, I don’t want to give all the secrets away of how [crosstalk 00:24:52] to do it effectively. We did negotiate a contract with the Mitchell Madison group, but we’re like a small firm. We’re less than 100 people, so it doesn’t really affect us that much, but I think it is actually the next frontier where human resource management and sourcing comes together, which is again why we did this Alliance with PRO unlimited, because there’s a lot of labor, right? That doesn’t show up as labor, as temp labor.

Hans:  25:20
So, anything that’s governed by a statement of work and [inaudible 00:25:23] mentioned IT, all these contracts, what we find time and time again is that people make this very fundamental mistake that they think of it in terms of extremes. Either I’m buying a software development team in terms of the people and mark it up by the hour and I manage the hours, or [inaudible 00:25:46] says, I’m going to build you an [inaudible 00:25:48] implementation, it’d be like $50 million or it’s the fixed price.

William:  25:52
Right.

Hans:  25:52
That’s never the right… so, it’s always in hybrid. You want to manage… it’s never this simple, because it’s like building a house, right? If you have a fixed price, what’s the first thing it’s going to happen? Oh, you want a nicer kitchen? I can do that for you. You changed your mind, right? So, all these things, it’s very simple.

You have to really make sure that you understand the pricing methodology from various components that align the incentives or you will get hammered on change orders, all these things and it’s an open secret. Everybody knows it, but I think really addressing professional services, IT development, high value, human derived services is the next frontier.

Hans:  26:38
We did some really interesting pathbreaking work. It was several years ago, but it’s still absolutely leading edge. We’ll be converted a very large amount of legal spend in lawyers for insurance defense for big insurance company into lifetime cost per case for outcome, which had never been done before.

But it’s very complicated, right? You can’t just say my car crashes, please do the case for $5,000 or $500,000 an hour. It’s very sophisticated mathematics. As portfolio management approaches, it’s really complicated stuff, but it can be done, right? But the simplistic approaches as usually in life in these very high-end SOW type professional services, there is a lot of money in there that is to be had.

William:  27:27
Drops mic, walks off stage. Hans, thank you so much for spending time with us and explaining the Mitchell Madison Group, MMG and the use case for it. I absolutely appreciate your time and I learned a lot. So, thank you so much.

Hans:  27:44
Thank you so much as well.

William:  27:45
Alrighty and thanks [crosstalk 00:27:47] for everyone listening to the use case podcast. Until next time.