6 Tools Every Business Consultant Should Know

We believe it is important as technical consultants to know the big picture on how businesses operate. In so doing, we can more effectively optimize their business. Of these six tenants we choose to focus on number 6 the most (Core Competencies).

We aim to eliminate distractions and time sucks from your business so you can focus on your core competencies. Business experts have a number of tools at hand to analyze company performance. Here are six frameworks that consultants and business analysts use, and that you might consider adding to your own set of tools.

1. Benchmarking

Benchmarking is the process of comparing your company metrics to the metrics of your industry competitors or to those of innovative companies outside the industry. Common metrics for benchmarking include:

• Revenues
• Production costs
• Employee turnover
• Process cycle time

Read more about benchmarking at Bain & Company Business Insights: Benchmarking and Harvard Business Review blog: Beyond Benchmarking: Why Copy the Competition? Why Consultants Value the Balanced Scorecard Holistically evaluate a company's strategy and performance - beyond the financial books - using the balanced scorecard.

2. Balanced Scorecard

The balanced scorecard is a framework for tracking important aspects of company strategy and for facilitating organizational improvement or change. It measures metrics beyond typical financial metrics to help companies keep long-term strategic goals in focus and spot trouble before it appears in the financial statements.

The scorecard is a comprehensive and quantitative set of objectives that can be measured over time. Common components include:

• Revenues
• Earnings
• Market share
• Quality
• Employee morale
• Customer satisfaction metrics

Learning how to assess and measure these components is best done in a hands-on setting. Our three-day Strategic Frameworks for Competitive Advantage takes a deep dive into the frameworks for launching successful initiatives in your organization.

You can also read more about the balanced scorecard at Bain & Company Business Insights: Balanced Scorecard.

3. Porter's Five Forces

Developed by Michael E. Porter, Bishop William Lawrence University Professor at Harvard Business School, Porter's five forces is a framework for industry analysis that is used as an input to a strategic plan.

The five competitive forces that influence profitability in any industry are outlined in Porter's model:

• Competitor rivalry
• The bargaining power of buyers
• The bargaining power of suppliers
• The threat of new entrants
• The threat of substitute offerings

Learn more at the Five Competitive Forces That Shape Strategy: A video interview with Michael E. Porter.

4. The GE-McKinsey Nine-Box Matrix

This matrix was developed by McKinsey & Company in the 1970s to help General Electric prioritize its investments in its numerous business units. It's widely used to help companies assess the relative merits of various opportunities.

Business units or opportunities are categorized as "high," "medium," or "low" within the two axes of the matrix, which are "industry attractiveness" and "competitive strength of the business unit."

For more information, read McKinsey Quarterly's Enduring Ideas: The GE-McKinsey nine-box matrix.

5. The BCG Growth-Share Matrix

This quadrant matrix, developed by Boston Consulting Group (BCG), is a tool companies use to assess the relative strength of product lines within their portfolios.

Product lines are assigned to one of four quadrants:

• Cash cows
• Stars
• Question marks
• Dogs

Read BCG: The growth share matrix or the product portfolio.

6. Core Competencies

The process of identifying your company's core competencies helps you define your company's positioning and competitive advantage. A core competency is a proficiency in an area that is not easily replicated by competitors. It allows your company to deliver unique value to customers, thus giving the company a "leg up" on the competition. One example is how the employees and unique culture of Southwest Airlines allows them to provide better customer service and faster turnaround times for planes.

How Core Competencies work:

To develop Core Competencies a company must take these actions:

• Isolate its key abilities and hone them into organization-wide strengths
• Compare itself with other companies with the same skills to ensure that it is developing unique capabilities
• Develop an understanding of what capabilities its customers truly value, and invest accordingly to develop and sustain valued strengths
• Create an organizational roadmap that sets goals for competence building
• Pursue alliances, acquisitions, and licensing arrangements that will further build the organization's strengths in core areas
• Encourage communication and involvement in core capability development across the organization
• Preserve core strengths even as management expands and redefines the business
• Outsource or divest noncore capabilities to free up resources that can be used to deepen core capabilities

Companies use Core Competencies to:

• Design competitive positions and strategies that capitalize on corporate strengths
• Unify the company across business units and functional units, and improve the transfer of knowledge and skills among them
• Help employees understand management's priorities
• Integrate the use of technology in carrying out business processes
• Decide where to allocate resources
• Make outsourcing, divestment, and partnering decisions
• Widen the domain in which the company innovates, and spawn new products and services
• Invent new markets and quickly enter emerging markets
• Enhance image and build customer loyalty

Selected references

• Alai, David, Diana Kramer, and Richard Montier. "Competency Models Develop Top Performance." T + D, July 2006, pp. 47-50.
• Campbell, Andrew, and Kathleen Sommers-Luchs. Core Competency-Based Strategy. International Thompson Business Press, 1997.
• Critelli, Michael J. "Back Where We Belong." Harvard Business Review, May 2005, pp. 47-54.
• Drejer, Anders. Strategic Management and Core Competencies: Theory and Applications. Quorum Books, 2002.
• Hamel, Gary, and C. K. Prahalad. Competing for the Future. Harvard Business School Press, 1994.
• Prahalad, C. K., and Gary Hamel. "The Core Competence of the Corporation." Harvard Business Review, May 1990, pp. 79-91.
• Quinn, James Brian. Intelligent Enterprise. Free Press, 1992.
• Quinn, James Brian, and Frederick G. Hilmer. "Strategic Outsourcing." MIT Sloan Management Review, Summer 1994, pp. 43-45.
• Schoemaker, Paul J. H. "How to Link Strategic Vision to Core Capabilities.? MIT Sloan Management Review, Fall 1992, pp. 67-81.
• Zook, Chris. "Finding Your Next Core Business." Harvard Business Review, April 2007, pp. 66-75.
• Harvard Extension Harvard Division Of Continuing Education