M S Sriram weighs an insider take on the evolution of management thought in the 20th century via the ideas of pioneering consultants
Writing a book on business history is not glamorous. It does not fetch visibility and consulting opportunities. That is why (with some notable exceptions like Pankaj Ghemawat and Dwijendra Tripathi) business historians have been outside the academic world — whether it is Harish Damodaran, R M Lala or Gita Piramal in the Indian context. To find a well-researched, well-written book on the history of strategy is refreshing.
Walter Kiechel’s book provides an idea of the overarching themes with which management thought has engaged in the last five decades. He makes the book interesting by making it personal, choosing anecdotes instead of references and using simple language. He weaves the strategy story around four personalities and their organisations, a style Michael Lewis adopted in his recent book on the financial sector crisis, The Big Short.
The book demonstrates that the frontier contribution on strategy came neither from cutting-edge innovative businesses nor from academics’ grand models. It came from consulting. The consulting firms had to remain in business and show results for their theorisations without the pressures of publishing in academic journals. Kiechel demonstrates that consulting firms were reinventing themselves to remain relevant, pushing practices and building models around them. They were putting ideas across in their own pamphlets instead of waiting for academic endorsement. Given that consultants as a class are usually seen as parasitic, this book debunks the myth and puts them on a pedestal, demonstrating how they pushed frontiers to build the field of strategy.
Through the stories of the lords of strategy — Bruce Henderson (Boston Consulting Group, or BCG), Bill Bain (Bain & Co), Fred Gluck (McKinsey) and Michael Porter (Harvard Business School) — Kiechel takes us through the conception of strategy as distinct from the annual planning exercise. The paradigm shift in the first phase of strategy — though articulated as an obsession with costs and efficiency and riding on the experience curve — was towards the use of data as a competitive weapon. While BCG used it in the growth share matrix, placing the business portfolio of a corporation in a measurable, actionable format, the secretive Bain took it further to offer a customised, implementable solution to the client.
Even as he traces the evolution of management thought in the past five decades, the author also traces the quirks of these four thinkers. From using data to understand costs, to gaining efficiency (translated as a competitive weapon to win more customers), to delivering measurable value (Bain), to benchmarking performance with the stock market, this is an interesting progression.
Once Kiechel is through with the four personalities, he deals with the others who come in and disappear — personalities like Tom Peters, Robert H Waterman Jr, C K Prahalad, Gary Hamel, Henry Mintzberg, Peter Senge and so on. What these remarkable scholars propounded does not engage the attention of the author possibly because their formulations have not withstood the test of time.
The other questions that the book raises are the relevance of consultants and their models in the changed context where businesses run on different rules. Kiechel engages with two issues — capital and people — that the thinkers did not consider in their formulations. While the BCG matrix propounded that the cash cows will fund the stars and the question marks, the effective means of raising capital for an accelerated growth was not fitted into the matrix. It’s the same with people.
The nineties laid excessive focus on capital. Stock markets matured, intellectual power was devoted to structuring complex instruments, the retail investor was edged out, leaving spreadsheet specialists to act on behalf of both the informed investor (wealth management?) and the lay investor (mutual funds). This resulted in the decoupling of the entrepreneur and the supplier of capital. In earlier decades, all factor providers were fixed pay-off agents and the suppliers of capital were eligible for the residual claims. However, with leveraged buyouts (LBOs), private equity and venture financing gaining currency, the suppliers of capital and the entrepreneurs were decoupled. The entrepreneurs (who possibly did not have their own capital, but had ideas) were compensated not only through fixed pay offs (managerial compensation) but also through sweat equity and other sophisticated instruments that gave them a share in the upside. This business model shifts the primacy from capital toward ideas. These ideas work faster, quicker and in more concrete terms in non-capital intensive services sector. None of the models propagated by the four towers was appropriate in this changed context.
The second fundamental change was that the business itself became fungible. Divisions were chopped and peddled.
A company like Dell could be described as being in the business of selling computers, but basically doing logistics. A company like Procter & Gamble may aim to increasingly “outsource” its product development. This changes the role of the corporation. In this changed environment, would the core of consulting practice be in formulating models or in facilitating deals? From the days of Hendersen, when firms were pushing the frontiers of how businesses run, to being a part of the “conspiracy” in deal-making, there is a fundamental change. The consulting practice that pushed the frontiers of management thought now does business possibly not through a superior thought process but through a process of “networking”. Kiechel remains loyal to the four personalities who lord over the book and not to the firms that they set up or headed. He discusses their successors — people and ideas — but does not seem to believe these will last.
The book is a delightful read, thought-provoking and written with a flair that escapes the traps of abstract academia. It is time for us to pause, look again at the four towers that shaped strategy and see if their logic is still relevant.
M S Sriram is a former professor of the Indian Institute of Management, Ahmedabad
THE LORDS OF STRATEGY
The Secret Intellectual History of the New Corporate World
Author: Walter Kiechel III
Publisher: Harvard Business Press
Price: Rs 995