Books@DailyFinance: Management Theory to the Rescue in The Lords of Strategy


In the early-1980s, they called it "the seagull model of consulting": You flew out from headquarters, made a few circles around a corporate client's head, deposited a strategy on him, and flew away again.

The "seagull model" was a private joke among staffers at Boston Consulting Group, or BCG, the outfit that pretty much created business-strategy consulting. Even they acknowledged (only among themselves, of course) that they weren't involved in implementing the big ideas for which they charged clients a bundle. This state of affairs soon began changing, as BCG increasingly adopted the be-with-you-all-the-way approach that rival Bain & Co. had been pursuing for years.

But the image of the seagull haunts Walter Kiechel III'sThe Lords of Strategy: The Secret Intellectual History of the New Corporate World(Harvard Business Press, $26.95). Throughout its pages, the author tells how one management fad - or, to be kind, philosophical insight - succeeded another over the decades since the mid-1960s.

A World of 'Growth Share Matrixes' and 'Value Chains'

Kiechel, a former managing editor at Fortune and former editorial director at Harvard Business Publishing, is a skilled writer and he has crafted a surprisingly readable and valuable work. But in the context of business, intellectual history seems a bit peculiar: As the author's consultants and business professors devise such notions as "the growth-share matrix" and "the value chain," not to mention "the seven-S framework" and "reengineering, it often seems as if they are engaged in a conversation among themselves, with little real-world significance.

Ideas, more than deeds, simply were and are the central product of consulting. And regardless of the ideas' worth – or whether or not they ever had an impact on the ground – the firms had to keep spewing out product, just like that seagull.

I must admit, however, that as a result of reading Lords of Strategy, I understand better than ever before how the various management ideas fit together; why some analytic approaches have had more staying power than others, and how various prevailing ideas could be succeeded by new ideas floated by rival consultants.

As Kiechel explains, prior to the 1960s, "strategy" was a term seldom used in a business. In 1962, Harvard historian Alfred DuPont Chandler published a book that would come to be regarded as a classic of business history, Strategy and Structure, examining the emergence of decentralized organization in such companies as DuPont and General Motors. But it was mostly BCG, with its "experience curve" (showing how a company's costs should reflect its share of a market) and "growth share matrix" (which shed light on how a company's various businesses should be managed), that persuaded companies that they needed strategies. By 1979, a Harvard Business Review study showed that 45% of Fortune 500 companies were using some form of BCG's matrix to evaluate their units and plot the way forward.

McKinsey, the world's most prestigious consulting firm, built its own matrix and a highly lucrative strategy business in the 1980s. But the most important refinement of this approach came from Harvard Business School professor Michael Porter, whose books Competitive Strategyand Competitive Advantageoutlined how a company could "position" itself with a strategy that distinguished it from competitors.

To some, all these approaches, with their emphasis on costs and various quantitative measures, were a bit bloodless. That left the door open for the likes of McKinsey analyst Tom Peters and others who pushed the human dimension to the forefront. In his mega-selling In Search of Excellence– the first business book ever to reach No. 1 on The New York Times best-seller list – and in the subsequent writings of Peters and such confreres as Jim Collins, Gary Hamel, Rosabeth Moss Kanter, and John Kotter, it is people who are key, since humans are essential to innovation, service, and corporate learning – and not coincidentally, are every company's customers.

Seagulls and Capitalism

The problem for such up-with-people advocates was that they could never quite agree on what Kiechel calls "a unified theory of management." In the absence of such a paradigm that could challenge the strategy scholars, they had no persuasively abiding truths to offer a company in need of clear analysis and clear-cut choices. And that failing paved the way for what might be seen as the tragic legacy of strategic consulting. For it has become a tool of what the author calls Greater Taylorism, or a relentless application of "sharp-penciled analytics" to every aspect of a business, often with unhappy consequences for long-time workers and dependent communities.

In the 1980s, strategy became the handmaiden of the leveraged buyout and hostile takeover, whereby outsiders loaded up on debt in order to purchase and break up various old-line outfits, from Federated Department Stores to meat packer Swift & Co. "Sell off the turkeys" among your holdings, and you can increase your stock price – and management's compensation, the consultants advised. Such adventures often turned out poorly for all concerned, as buyout juggernauts like Drexel Burnham Lambert and targets like Jim Walter Corp. ended up in bankruptcy.

A 1990s iteration of strategy consulting was "reengineering," articulated most famously in a series of articles and books by former MIT professor and consultant Michael Hammer. The approach was around for only a few years, as corporations' rank-and-file put up resistance to what they saw as a thinly-veiled program of downsizing. A mid-1990s survey told the story: 73% of companies surveyed by consultant CSC Index admitted that they were using reengineering to eliminate, on average, 21% of their workforces.

More recently, the strategy consultants have become allies of private-equity firms, who, like the old leveraged-buyout outfits, raise pools of capital, buy out businesses, streamline them by applying strategy consultants' insights, then either sell the companies off or take them public, reaping a healthy return.

With unemployment stuck in the neighborhood of 10%, it's hard to feel good about a trend that promotes such achievements over a more human-centric way of doing business. Along with Kiechel, we may console ourselves that "without strategy and strategy consultants, we could have broad swaths of the U.S. industry that look like the automakers" – arrogant, silo-ridden, and globally uncompetitive. But the strategy consultants have done their part to amplify what the author calls "the fiercening of capitalism" and a growing elitism that justifies an ever greater wealth disparity between foot soldiers and the captains of industry. That lopsided income distribution has Kiechel himself wondering: "Are we now as a society...ready to rethink our reliance on market mechanisms to produce the larger good?"

You mean rethink the notion that unfettered capitalism is the best of all possible systems? Heavens, what would the seagull advise?