01 Mar 2010
Lords of Strategy
Inventing Business’s Great Gameby Garry EmmonsTopics:
In his new book, The Lords of Strategy: The Secret Intellectual History of the New Corporate World (Harvard Business Press), Walter Kiechel III (MBA ’76) traces the rise of modern management consulting from the 1960s to the present. Kiechel’s narrative revolves around four key individuals who helped establish the corporate strategy movement that underpins today’s multibillion-dollar consulting industry. The four men are Bruce Henderson (MBA ’41), founder of The Boston Consulting Group; Bill Bain, creator of Bain & Company; Fred Gluck, longtime managing director of McKinsey & Company; and HBS professor Michael Porter (MBA ’71).
In addition to the pioneering roles played by this innovative quartet, there is another leitmotif — a fifth key player — that runs throughout the book: The industry would not exist as it does today without the contributions made over the years by scores of HBS alumni and faculty, and by the School itself as an institution. Excerpts from the book follow.
The Big Bang
Fifty years ago, Kiechel writes, corporate strategy did not even exist as a concept, let alone as the foundational element for an entire industry.
What companies didn’t have before the strategy revolution was a way of systematically putting together all the elements that determined their corporate fate, in particular, the three Cs central to any good strategy: the company’s costs, especially costs relative to other companies; the definition of the markets the company served — its customers, in other words — and its position vis-à-vis competitors. If an enterprise had different lines of business, it might view these in historical terms — “First we got into radio, which led us into television” — or as a capital allocation puzzle. But it wouldn’t think of the array as a portfolio of businesses, each of which might be grown or harvested, bought or sold, in service to a larger corporate purpose. Most dangerous of all, the prestrategy worldview lacked a rigorous sense of the dynamics of competition — “If we do this, the other guy is likely to do that.” It was like trying to do large-scale engineering without knowing the laws of physics. As a set of ideas, strategy sought to remedy all these deficiencies.
And the effort was spearheaded by, of all people, management consultants — Bruce Henderson and his ilk….There are many sorts and conditions of consultants, and even the best can be fairly hermaphroditic creatures, one minute exhibiting a professor’s passion for the great clarifying concept, the next displaying sales skills worthy of a street hustler. Among my contentions is that it was this very combination of natures that animated Henderson and his confreres to launch the strategy revolution.
The Corporate Apocalypse and Greater Taylorism
After America’s postwar boom and preeminence, factors arose that made strategy consulting both inevitable and irreplaceable.
Every historical period feels itself beset with forces making for change, but for the corporate world, the past fifty years have been especially rich with menacing surprises, one response to which was the rise of strategy. Consider a few of the most significant jolts, which sometimes seemed like the four Horsemen of the Corporate Apocalypse. The first, though not necessarily chronologically, was the deregulation of industries in which competition had traditionally been held in check by government rules, as in airlines, banking, and telecommunications. The second consisted of the ever-widening effect of new technologies, including the increase in computer power, its spread to desktops everywhere, and the coming of the Internet. In the third, capital markets freed themselves up, shedding inhibitions against hostile takeovers, establishing a genuine market for the control of companies. The fourth horseman usually goes by the name globalization, the fact that companies find themselves buying from, selling to, and competing with enterprises and customers from around the world.
What all four had in common was that they worked to extend the reach of markets, and hence of competition, into places that Schumpeterian creative destructiveness had never touched before. If there’s one form of mindfulness that strategy has installed in the corporate brain above all others, it’s an ever-edgy awareness that other guys or gals are out there, trying to take your business, probably gaining on you, and that new miscreants are popping up all the time, increasingly from places whose names you can’t pronounce….
Part of the strategy revolution was the coming of what I’ll call Greater Taylorism, the corporation’s application of sharp-penciled analytics, this time not to the performance of an individual worker — how fast a person could load bars of pig iron or reset a machine — but more widely to the totality of its functions and processes. How much does it cost us to make our steel? How can the Japanese do it so much less expensively? How can we redesign our whole chain of activities, from purchasing raw materials to delivering the final product, so that we can compete with them?
Greater Taylorism has chewed its way across the corporate landscape to virtually everywhere large companies practice twenty-first-century capitalism, which means on just about every continent. Its appetite for more numbers, more data, seems only to increase with the computer power available to crunch those numbers. And it has become steadily less patient for results, in part because now you can get the numbers back from the market overnight. Private equity firms, with their short time horizons and relentless pressure for results, are merely the latest shock troops for Greater Taylorism’s ineluctable advance….
In a speech from late in the 1990s, George Stalk Jr. MBA ’78, arguably BCG’s leading thinker on strategy over the prior fifteen years — and certainly the firm’s most prolific — neatly summed up the main themes of the era, in the process making clear how far his firm had traveled from original Hendersonianism: “In this new environment, the essence of strategy is not the structure of a company’s position in products and markets, but the dynamics of its behaviors. The goal is to identify and develop the hard-to-imitate organizational capabilities that distinguish a company from its competitors. A capability is a set of business processes, strategically understood.”
Partly in response to new pressures to create shareholder wealth, companies did indeed improve their capabilities, but over time, the effort would prove a fillip more for Greater Taylorism than for the cause of strategy. As the 1990s were to make clear, advantage based on capabilities could be competed away just as quickly as that based on position. By the middle of the decade, as Michael Porter would return to the discussion to announce, being state-of-the-art in your processes — what he called your “operational effectiveness”— merely constituted table stakes, the minimum required to keep you in the game.
Slicing the Data Ever Finer
With management consulting now several decades old, Kiechel finds that despite its shortcomings, the industry can stand tall.
Every day, Greater Taylorism applies its analytic engines to more aspects of what workers are doing, slicing the data ever finer — IBM modeling individual employees, retailers using so-called human-capital management systems to time even the smallest task and to schedule people accordingly….What the systems don’t capture is Keynes’s famous “animal spirits,” entrepreneurial energies and imaginings that bring a business to life. They also miss out on the aspirations employees may harbor to think a bit on their own, experiment with new ways of doing the same old drill, and perhaps even be recognized by the company for what they create. For most of strategy’s history, those are precisely the factors that the paradigm hasn’t found a way to work into its calculations. If the discipline is to continue to be of service, it will have to find that way.
In seeking models of an organization that succeeds in weaving together corporate purpose, first-rate analytics, and individual aspiration, the quest might start with the very consulting firms that gave intellectual structure to the rise of strategy. At their best, BCG, Bain, and McKinsey apply the same empiricism and rigor to the management of themselves as they do to client work….The result is to create many of the features that one would hope for in a twenty-first-century enterprise: organizational due process that leaves most people feeling that they have been treated fairly. Democratic meritocracy open to talent from around the world. (Who among business outfits does globalization better?) A system of self-management that works even for people who adamantly don’t want to be managed, never wanted a boss. Most of all, it seems a form that encourages members to venture down the paths where curiosity, imagination, and entrepreneurial energy lead them….Bruce Henderson would have been pleased with his legacy in this respect. Its possibilities are exactly what he wanted for himself.
Walter Kiechel III
A graduate of Harvard College and Harvard Law School as well as HBS, Walter Kiechel spent nearly twenty years at Fortune magazine, where he rose to become managing editor. He then moved to Harvard Business Publishing, where he became editorial director, with primary responsibility for Harvard Business Review. Also the author of Office Hours: A Guide to the Managerial Life, a collection of writings from his Fortune column of that name, Kiechel has served as the host of business programs on radio and television.
When one-time Bible salesman Bruce Henderson died in 1992, the Financial Times declared that “few people have had as much impact on international business in the second half of the twentieth century.” Kiechel sees Henderson as a man “obsessed with figuring out how the world works” and “how one company achieves an advantage over others.” Cantankerous and often difficult to work with, fired by Westinghouse and other companies (and proud of it), Henderson founded The Boston Consulting Group in 1963. It was BCG that would invent the strategy revolution’s key concept: “the experience curve,” a formulation with the power “to discipline a company’s thinking around the imperative to cut costs incessantly,” Kiechel writes. By getting companies to understand that success hinged on steadily reducing costs relative to their rivals, the then-novel notion of competition sprouted and spread throughout corporate consciousness. Henderson and BCG would also famously devise the “growth-share matrix,” another cornerstone of strategic thinking.
Bill Bain, like Bruce Henderson a Tennessee native, was Vanderbilt’s director of development at age 26. In that capacity, he met and was hired away by Henderson to work at BCG (where he was the firm’s “best salesman ever,” Kiechel writes). In 1973 Bain left BCG and, with several others, founded Bain & Company. The new firm’s approach differed from BCG in that it kept its work closely held and its ideas proprietary, thus earning itself a reputation for being secretive. In another departure, Bain vowed the firm would work with only one client per industry, in an effort to engage with clients long term rather than on a “one and done” project basis. Bain also promoted and established the rather unusual belief that the firm should help its clients implement its suggestions, rather than merely presenting its advice and moving on, as had been customary within the consulting business.
Fred Gluck grew up in a one-bedroom Brooklyn apartment with his parents, his grandmother, and his five siblings. It was from these humble beginnings that Gluck went on to do something that Kiechel argues was even more difficult than founding a firm, as Bruce Henderson and Bill Bain had done. Instead, what Gluck did was take the world’s most prestigious and self-confident consulting firm, McKinsey & Company, and revolutionize it. Gluck joined The Firm (McKinsey preferred upper-case designation for itself) in 1967 and, with his background in engineering, became known for his insistence on more data and deeper analysis than had been the McKinsey norm. In the 1970s, he began touting the importance of strategic management for every kind of firm; eventually strategy consulting would become the core of McKinsey’s business as it surpassed BCG and Bain in billings derived from that sphere. Gluck became managing director in 1988; his introduction within The Firm of fifteen “centers of competence,” ranging from corporate finance to manufacturing logistics, was another major legacy.
The man whom Kiechel proclaims “the most famous business school professor of all time” demonstrated an early penchant for competition. A peripatetic Army brat, Porter was an all-state football and baseball player in New Jersey before majoring in aerospace engineering at Princeton (where he finished first in his class and was an All-American, and mostly self-taught, golfer). Strategy came later, with the encouragement of HBS professor Chris Christensen; Porter went on to earn a Ph.D. in business economics from Harvard and later cofound the Monitor Group consulting firm in 1983. In Porter’s view, Kiechel says, there are only three basic strategies open to a company: low-cost leadership, product differentiation, or market specialization. Informing these approaches, Porter has produced an unparalleled flow of what are now world-famous, business-shaping ideas: “the five forces,” the “value chain,” “clusters of competence,” and more.
Class of MBA 1976, Section A
Class of MBA 1977, Section A