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Posted on Harvard Business Review: February 25, 2010 2:35 PM
I spoke recently with Walter Kiechel about his new book, The Lords of Strategy, which describes the rise of the large strategy consulting firms—BCG, McKinsey, and Bain—as well as the business school professors who contributed conceptual frameworks and pragmatic insights to the strategy revolution. Kiechel, a former Managing Editor at Fortune magazine, was the Editorial Director of Harvard Business Publishing from 1998 to 2002.
HBR: Two of the big themes in the evolution of strategy thinking from the 1960s to the present particularly caught our eye. The first is the rise of frameworks that brought with them Greater Taylorism—sharp-penciled analytics that focus on costs and efficiency. The second is about helping employees to learn, innovate, and change. Why is the first set of ideas so much better understood?
KIECHEL: The bottom line, I guess, is that it's easier to measure costs and market share than it is to measure the human dimension of what goes on in organizations.
But it's more complicated than that. People who put more emphasis on the human side don't seem to care about developing a shared explanatory framework. The people interested in developing the idea of strategy, by comparison, wanted that very much. Michael Porter didn't throw over the experience curve or the growth-share matrix; he criticized them, but he also built on them and improved them. I can't find any evidence that the people who were pushing the human dimension ever settled on a base of ideas. Stanford professor Jeff Pfeffer says that if you canvas 105 people in organizational science, you get 146 different answers to the question "What are the most important issues to focus on?" Among those, 106 are unique answers.
I wonder if a different kind of mind is needed for analytics than for reinvention and growth.
Or a different part of the mind. Neuroscientists are finding that the more deeply associative ideas that give rise to innovation take place in one area of the brain, and the analytic work in another.
Throughout the book, strategy consultants do a better job helping companies create strategy than execute on it. This feels particularly relevant right now: companies are facing a long, slow recovery where execution skills will be essential. What are the toughest challenges?
The first big challenge is responding quickly to changes in the environment. That requires devolution of the ability to think strategically from the top of the organization to everywhere else—especially to the customer-facing periphery.
The other challenge is figuring out how to integrate talent and strategy implementation. A lot of companies now say that they don't want employees for life. Well, okay, but how do you make sure that people who are with you for a short time understand the strategy well enough to make decisions responsibly? Do project-by-project employees necessarily understand the company's costs, competitors, and customers well enough to make decisions that align with the strategy? It's a tricky challenge.
Private equity firms seem to be good at plugging operating managers in and out as needed. Maybe that's because they're absolutely clear about what the strategy is. In large corporations, that's rarely the case.
Big companies have spent a lot of money, much of it with big consulting firms, trying to innovate better, without much success. Have smaller innovation consultants like IDEO done a better job?
IDEO has done a great job helping companies think about design and innovation. They're part of a larger movement in consulting—specialization. Everyone specializes now. The giant firms, the McKinseys and the BCGs, specialize around their industry practices and around certain management concepts. Back in the 60s and 70s they took great pride in being generalists. Not true anymore.
The big strategy firms have solved many of the problems that their clients face: They're truly global, they compete on the basis of intellectual capital, they manage talent brilliantly, and they're effectively democratic. But I don't think they've tried to create businesses around sharing those competencies with clients. Why is that?
The big consulting firms are ambivalent, at best, about doing organizational-development work. It's seen as less prestigious than crafting strategy. Also, their degree of self consciousness has only evolved in the last ten or 15 years. They didn't start managing alumni networks, or knowledge management systems, until fairly recently. Still, it is a strange paradox that they haven't recommended their systems for developing talent or internal governance to their clients. But then, the consulting firms are partnerships while most of their clients are publicly held companies.
You remember the days when we referred internally to the HBR articles we developed on sustainability, social enterprise, or globalization as "spinach." We needed to publish them, but nobody wanted to read them. Do you think those issues are becoming central for more companies?
If that shift is happening, it could be linked to the fact that competitive advantage is eroding more and more rapidly. It would make sense that more people are seeking opportunities in unexplored places, including in the markets that have not been well served by large corporations. It would also make sense that, for some companies, having an advantage in terms of sustainability would directly feed their competitive advantage. And if you get a generation of potential workers whose intrinsic values are much more aligned with that, you'll need to engage those people and appeal to their interests.
You write that we're collectively in love with the idea of persistence and sustainable advantage, but that in reality those things are vanishingly rare. That resonated for me as I watched my favorite company, Toyota, unravel over the last few months.
We do bring a lot of expectations to companies; we want to believe that they have enduring qualities. But there are extraordinarily few examples of companies that maintain real excellence or proficiency over time. The beaches of business and management literature are littered with the wrecks of former paragons.
Every article or case study that holds a company up as an exemplar should say, Reader beware. We should acknowledge, and maybe even appreciate, that any example of corporate greatness or excellence is not forever, is, in fact, fleeting.
The one thing that does persist is culture, which is infinitely harder to change than a strategy. This means that when you take on a new strategy, it's got to be aligned with your DNA, right?
Exactly. You have to know what your cultural boundaries are, and then you need to innovate and grow within those. Chris Zook gets at that in his trilogy on profiting from the core.
You write that a person couldn't become seriously wealthy at a strategy consulting firm, because they only make three or four million a year. I laughed when I read that, but then I realized that $3 million is small potatoes compared with what top people in the financial sector make. How concerned are you about the growing gap between the very wealthy and the middle class?
I think it's a major problem, just as I think it's a major problem that we now have an effective unemployment or underemployment rate of something approaching 20%. One of the pernicious side effects of the rise of strategy is that it's made for a greater division within corporations between the elite, who are making the strategy, and everyone else. I keep expecting people to be more bothered by the disparity. I guess the explanation is that as long as Americans believe that they've got a chance of landing some of those riches themselves, they're not going to feel bad about it.
We haven't seen a lot of big ideas coming out of the strategy field recently. Do you think the problems we face right now, especially systemic financial risk and the difficulties of globalization, will revitalize the field?
Well, first, I think you're right. It's tough to identify any big new strategy ideas since 1995. I think maybe we're looking for strategy ideas in the wrong places. Maybe what's emerging isn't the huge idea that will be applicable across all sorts of businesses, like the value chain or the experience curve. But there will be insights that are valuable for particular types of businesses. Maybe strategy, like the strategy consulting firms, is becoming more specialized and fragmented. The brilliant strategy for health care reinvention doesn't work for the automobile industry. But if it fixes health care, maybe that's good enough.