THE LORDS OF STRATEGY
By Walter Kiechel III
Harvard Business Press, 346 pages, $32.56
We sneer at management consultants, and the spell they seem to cast over top management. But our companies still hire them. Repeatedly.
Like any business, consultants need a product to peddle. For the past four decades, that product from the major consulting firms has often been strategy.
Uncertain what to do? Fearful of increasing market turbulence or intensified competition? The consultants can illuminate your situation, through the tools they have developed and knowledge they have accumulated. Better, they can wrap that into a strategy that will make you look like you know what you're doing.
Best of all, the strategy might even work.
Former Harvard Business Review editorial director Walter Kiechel III looks at these peddlers in The Lords of Strategy. It might sound like a yawner, but he makes it come alive by focusing on the people who have led the big-name consultancies since the mid-1960s or have been responsible for their strategic innovations. So it's a visit to ghosts of our collective strategy past, but with a nimble journalistic mind clarifying patterns, profiling pioneering heroes and sidestepping abstruse academic details.
Mr. Kiechel traces the start to Bruce Henderson, who dropped out of Harvard Business School and managed to get fired from a couple of jobs -- "he was not always easy to deal with," noted the first speaker at his memorial service -- before founding what came to be the Boston Consulting Group. In 1966, the firm developed something called the experience curve, which has mostly drifted from our consciousness these days but whose basic underpinning remain. Indeed, Mr. Kiechel calls the revelation "electrifying" at the time.
It showed that companies could expect their costs to decline systematically, as they grew larger, and at a rate that the consultants insisted could be accurately predicted. A bigger market share meant your company had more experience with a product -- you had made more of it -- so therefore your costs would be lower than those of competitors. The experience curve, therefore, was a concept but also, more specifically for an individual firm, a graph of company costs or projected costs, with the costs declining as the total units produced grew.
The Boston Consulting Group's Richard Lochridge and Bill Bain - the latter later founded his own well-known consultancy - gave business the second wildly popular strategic tool, hastily traced on some graph paper before a meeting with Union Carbide officials to help explain their portfolio of different businesses. The "growth-share matrix" looked at whether the various divisions that a chief executive officer oversaw had high market share or high market growth. It then classified them as stars (high in both factors), dogs (low in both), cows to be milked (high market share but low growth), or question marks (high growth but low market share). Clarity for a top executive came by seeing his empire - each division -- plotted in dots on that four-quadrant matrix.
McKinsey & Co. developed a similar notion, a nine-box matrix based on industry attractiveness and ability to compete, but the next major breakthrough is attributed to an economist at the Harvard Business School who was initially denied tenure when all but one of his colleagues in the business policy faculty voted against him. His name is Michael Porter. He is probably the most famous business professor in the world today, Mr. Kiechel notes, and the fount for much of today's strategic thinking, with his insistence that strategy means choice (you can't do everything) and his celebrated five-forces framework.
Those forces help to explain how profitable an industry might be and where it would be smart to position your company. At the centre, the first force is the competitive rivalry between firms, and elements such as industry concentration, product differences, fixed costs, and brand identity. Arrayed around it were four other forces: the suppliers and their bargaining power; possible new entrants to the field and how easily they can join the fray; buyers of the product and their bargaining power; and substitutes that might replace your offering.
Prof. Porter later added another strategic wrinkle that is gospel today. Companies can succeed through one of three paths: low-cost leadership, à la Wal-Mart; product differentiation in which you make your product so distinctive you can charge more for it, like Apple; or market specialization in which you pick a niche and dominate it, like Starbucks. Needless to say, with all those influential ideas, Prof. Porter founded a go-to consulting force, The Monitor Co.
What's missing from all that is people - a recognition that company success can hinge on the people within the company, and their effectiveness. Two heretics at McKinsey & Co. first glamorized that idea with the book In Search Of Excellence. Tom Peters and Robert Waterman studied top companies and developed what came to be McKinsey's 7-S framework for success: strategy, structure, systems, shared values, skills, staff, and style. Both were to leave the firm, not quite fitting its mold, and turned into celebrities, but Mr Kiechel notes that "in their subsequent books, Peters and Waterman would each return again and again to the centrality of people to a company's success - employees as the source of innovation, well-executed service, and continued corporate learning."
McGill University's Henry Mintzberg and others began to argue that strategy was not something developed by the CEO and top honchos in a boardroom, but it bubbled up as the people in the company spotted opportunities. Other strategic thrusts followed that are more familiar to us today, from the fixation with shareholder value to understanding a company's core competencies to business process engineering (best known as reengineering).
Mr. Kiechel artfully steers the reader through all of these various ideas, providing an enjoyable intellectual history of business strategy and some vivid personality profiles of the practitioners. It helps to know where you have been before deciding where to go, and this book will be a valuable foundation in such understanding.
Special to The Globe and Mail