BCG, Bain, McKinsey and Strategic Thinking

The Lords of Strategy It’s hard to believe there was a time when business strategy was more a theory than a given. That time, of course, is long gone. But just how did we get from there to here? Walter Kiechel III, the former editorial director of Harvard Business Publishing and former managing editor at Fortune, recounts the birth and evolution of strategy in his latest book The Lords of Strategy: The Secret Intellectual History of the New Corporate World . In doing so, he identifies four men who more or less invented it—Bruce Hendersen, founder of The Boston Consulting Group; Bill Bain, creator of Bain & Company; Fred Gluck, longtime managing director of McKinsey & Company, and Harvard Business School Professor Michael Porter. In this meticulously reported and entertaining book, Kiechel offers an insider’s account of how the profession’s most influential strategy firms came to be.

Consulting: For those of us that follow the consulting profession, I must say that you’ve written a great book that reads almost like a juicy tell all.

[Laughing] Well, I never thought of it that way, but I’m glad you enjoyed it.

Consulting: What was the inspiration for writing a book about strategy?

As a journalist, I’ve always thought the most interesting stories were the ones that were not covered sufficiently in proportion to their importance. In thinking about this over the last several years, it struck me that the development of modern strategy is one of those subjects. It’s really important and has been changing the way companies thought about how they do business, and the corporate landscape in general. I had never seen a book about strategy and its development in business.

I also thought the role of critical ideas hadn’t been put together in a coherent narrative, and I knew that a lot of the thinking around this came from places that not a lot of people knew about—management consulting firms and business schools. I thought those elements—and the people who defined them—were very interesting and not adequately covered. One of the main subjects of the book is Bruce Henderson. When he died in 1992, the Financial Times wrote that few people have changed the corporate world in the second half of the 20th century as much as he did, but I’m always surprised how few have actually heard of him. So I thought there were real discoveries to be made here.

Consulting: What would you hope readers take away from the book?

Walter KieschelKiechel:
I hope they realize strategy isn’t something that has always been, but that modern strategy is an intellectual creation—an invention—by a bunch of interesting thinkers who put together a framework whereby you could look at costs, competitors and customers in an integrated way that allowed you to achieve a competitive advantage more successfully. It also brought with it this phenomenon I call ‘Greater Taylorism,’ a sharp-penciled way of looking at your company and all the costs associated with it. Strategy has become the dominant way that companies think about who they are and what they do.

Consulting: This book includes a lot of history, particularly in consulting. What are the applicable takeaways for business leaders right now?

Kiechel: This book is primarily history, but anyone who reads it should come away with very ‘take this and put it into practice tomorrow’ type of lessons. One lesson would be: make sure that you’ve got a really good fix on your costs, your customers and your competition, don’t just listen to business unit heads or division managers who may be blowing smoke at this year’s budget presentations.

Another would be to have continuing cost reduction plans built into your way of doing business. Or, that most companies are in too many businesses—Bruce Henderson was saying that forty years ago. You should look at your portfolio and widdle it down the way private equity firms do when they buy a business.

Consulting: There are so many great stories in this book. What are some of your favorites?

Kiechel: Well, there were some discoveries that surprised me. One was the parallel lives of Henderson, Bain, Glut and Porter and how much resistance each of them had to overcome. You’ve got Henderson, who is fired from almost every job he ever had. You’ve got Bain, and even though he was doing a terrific job with his consulting engagements at BCG the partners didn’t like his model.

You’ve got Gluck, who was almost fired from McKinsey because he spoke up and said ‘I don’t think we got enough done here for the client on this consulting project.’ Well, the partners said: ‘Yeah, you’re right. We’re going to give some of the money back and give you another chance to see what you can do.’ And you’ve got Porter who was up for a promotion and all but one of the faculty votes against him. All of these guys faced resistance and had to overcome it.

They really were all maverick types, and I think that’s really interesting. And all of them, except Bain, were trained as engineers. That’s also true of some of the guys who subsequently contributed some of the biggest and boldest ideas, like BCG’s George Stalk.

Consulting: The origins of management consulting are front and center in this book. How do you view the profession’s role in shaping business strategy?

Kiechel: I’ve long argued, even before I started working on this book, that in terms of its influence, management consulting is the least covered, least appreciated and least understood industry. Management consulting firms have had a profound effect on the way that companies do business, and I don’t think enough people know about it for reasons that we both understand.

The companies and consultants want to keep most of what they do confidential. No one really wants to tell the stories. One of the reasons the subtitle of the book is “the secret intellectual history of the new corporate world” is because one of those secrets that no one talks about is the role management consulting firms played in reshaping the corporate landscape.

Consulting: With all that secrecy, just how did you go about getting some of these stories?
This was over a process of years. I signed a contract to do the book back in 2004 and then spent a lot of time conducting these interviews. I went all over—Shanghai, Munich, Germany, London, Paris, California, Florida. Then, we held the book up so I could do additional reporting on the global financial crisis. That’s the book’s final chapter.

Consulting: What role, if any, do you think consultants had in leading us into the financial crisis, and what role will they play in getting us out?

Kiechel: I don’t think the strategy firms were contributors to the global meltdown in an immediate sense. They didn’t invent credit derivatives. In fact, one of the things I found very interesting in my reporting was many of the companies that had been directly involved in the crisis—the big banks and financial firms—had shown the strategy consultants the door in about 2000.

So, consultants were not involved in those conversations. If you talk to veteran strategy consultants, they would say that the folks on Wall Street lost their way in terms of thinking strategically. They weren’t thinking long-term at all. They weren’t thinking ‘why is this business making so much money. Is there some risk involved here?’ What I hear is that the next few years are really going to be tough. Growth will be slow and companies will struggle. As we both know, consultants are trying to come up with ideas that will help.

Consulting: What about their future in strategy?

Kiechel: Consulting firms are much more specialized these days, and a lot of their idea generating and data gathering is now spent going into specific areas rather than looking for those big, strategic ideas that stretch across several industries. But the firms I focus on in the book—McKinsey, BCG and Bain—aren’t going to give up the title of ‘strategy’ firm any time soon.

That puts them in a unique bracket, and the fees they command reflect that bracket. But if you really push them on this, the number of engagements that they do that would be considered pure strategy is probably less than 20 percent of their total business. I think strategy formulation will be increasingly specialized and fragmented. Smaller and hyper-specialized consulting firms are beginning to increase competition with much larger strategy firms. As we move forward, I think we’ll see a lot more of that.