BackBoardroom big think: how business turned brainy
Boardroom big think: how business turned brainy
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As a business journalist and former editorial director of the Harvard Business Review, Walter Kiechel has had the unenviable task of spending much of his life hanging around with management theorists. These are the folks who bring out book after book of business advice that readers find unreadable and managers find unmanageable. Yet by some miracle Kiechel has remained immune to the maladies of the genre.
His The Lords of Strategy (Harvard Business Press, 347 pages, around Rs1,250) is a clear, deft and cogent portrait of what the author calls the most powerful business idea of the past half-century: the realization that corporate leaders needed to abandon their go-it-alone focus on their company’s fortunes and instead pursue policies based on a detailed study of the competitive environment and of broader business trends.
The “strategy revolution" began in the 1960s when the Boston Consulting Group (BCG) upended the industry. Rather than the usual tack of cozying up to individual chief executives for a bit of corporate kibitzing and calling it consulting, BCG produced a series of elegant intellectual models that could be broadly applied across the business world. BCG’s model for the “experience curve", for instance, taught companies that they could reduce their costs as they expanded their market share, thanks to the accumulation of know-how. The “growth share matrix" encouraged companies to view themselves not as an undifferentiated whole, but as a portfolio of businesses that make different contributions to the bottom line (“cash cows" versus “dogs"). Nowadays that sort of thinking might be unexceptional, but it was a radical development in the stagnant, inward-looking world of US industry of the 1960s.
The 1970s and the decades that followed saw the institutionalization of the revolution. One of BCG’s competitors, McKinsey and Co., shook itself out of a complacent torpor and began enthusiastically running out its own management-strategy models. Bill Bain and other BCG executives left the company in the 1970s and started a rival, Bain and Co. Meanwhile, Michael Porter brought strategy to the heart of the business establishment, the Harvard Business School. He added a powerful tool to the discipline’s arsenal, the notion of the “value chain", which helped managers break down a business into its component parts and then subject those parts to the rigours of cost-benefit analysis.
Yet success brought intense scrutiny and self-examination. In 1982, Tom Peters and Robert Waterman—McKinsey stars at the time—argued in In Search of Excellence that the obsession with strategy was leading managers to ignore the human side of things. And an army of young thinkers began shifting attention to more nuts-and-bolts matters, such as business processes and “core competencies".
Today the status of strategic thinking in the business world is somewhat confused: An idea that owed its appeal to the seemingly hard truths presented by models is becoming ever more nebulous. The lords of strategy are now given to happy talk about “people"—on the grounds that people are the key to innovation and innovation is the key to long-term success. Such concerns can easily degenerate into bromides about the need to treat employees well. Perhaps it is no coincidence that, at least before the current financial crisis wreaked its havoc, young business hotshots were turning their attention to financial engineering. About one-third of former McKinsey and BCG consultants currently work in the private equity business.
The Lords of Strategy is at its best describing and explaining the evolution of an influential idea in US business. The book is less successful as the “secret history" it claims to be. Kiechel has the habit of pulling aside the veil on the darker side of the management business only to pull it back again. He notes that a worrying number of consulting engagements end in tears—McKinsey had a long-term relationship with Enron—but he skimps on evidence.
Kiechel makes up for this coyness, though, with his enthusiasm for telling the bigger story at the heart of his book: the intellectualization of business. Back in the days of the “organization man" in the 1950s, business people tended to be affable types—pleasant, easy to get along with, but hardly rocket scientists. Since then an ever greater amount of brain power has been applied to business as more and more graduate students pursue MBA (150,000 annually in the US, up from 3,000 a year in 1948), and the brightest MBAs often go on to become business consultants.
The story that Kiechel tells does not have a particularly happy ending: The “quants" who would supposedly take business to a new level of intellectual sophistication designed financial tools such as the credit default swap that instead took the world economy to the brink of catastrophe. But Kiechel is surely right that we cannot begin to understand the world that we live in unless we grasp how corporate intellectuals came to have such a dramatic influence on the business world—and how old-fashioned virtues, such as judgement and common sense, were sidelined in the process.
THE WALL STREET JOURNAL
Adrian Woolridge is ‘The Economist’ management editor and the author of its Schumpeter column
Edited excerpts. Comments are welcome at views@livemint.com
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