August 2, 2014
“Most dangerous of all, the prestrategy worldview lacked a rigorous sense of the dynamics of competition—“If we do this, the other guy is likely to do that.” It was like trying to do large-scale engineering without knowing the laws of physics. As a set of ideas, strategy sought to remedy all these deficiencies.”
August 2, 2014
“that consultants are at best hangers-on of only occasional, limited usefulness—in the ancient, tired joke, someone who borrows your watch to tell you the time, ”
August 2, 2014
“which, of course, is not always a bad thing to be reminded of—or at worst, rapacious parasites whose slightest presence in the corporate body indicates gullibility, weakness, and insecurity on the part of its leadership.”
August 2, 2014
“They all believed that ideas are not “out there” waiting to be discovered, but are tools—like forks, knives, and microchips—that people devise to cope with the world in which they find themselves. They believed that ideas are produced not by individuals, but by groups of individuals—that ideas are social. They believed that ideas do not develop according to some inner logic of their own, but are entirely dependent, like germs, on their human carriers and environment. And they believed that since ideas are provisional responses to particular and unreproducible circumstances, their survival depends not on their immutability but on their adaptability.”
August 2, 2014
“The tamer, more conventional way of framing this tension is to see the history of strategy as a struggle between two definitions, strategy as positioning and strategy as organizational learning. The positioning school, led by Harvard’s Porter, sees strategy making as the choice of where you want to compete, in what industry and from what spot within that industry, and how—on price, with distinctive products, or by finding a niche.
The organizational-learning school, by contrast, maintains that no company that’s already up and running can choose its strategy as if it had a blank slate. Almost gleeful in its derision of the positionists—at least its leading spokesman, McGill’s Henry Mintzberg is—the learning school also argues that virtually no strategy ever works as originally planned. The point, they say, is for the company to set off in one direction, learn from the response it gets from markets and competitors, and then adjust accordingly.”
August 2, 2014
“ Somewhat incongruously for such a distinctively American character, Bruce Henderson was also an elitist. He provoked outrage among students at the Harvard Business School when he placed an ad in the student newspaper saying that BCG was looking to hire not just the run-of-that-mill but, instead, scholars—Rhodes Scholars, Marshall Scholars, Baker Scholars (the top 5 percent of the class). He wanted the smartest of the smart, and to attract them he was prepared to overlook what might have seemed obvious liabilities. Of the first seven professionals at BCG, only one besides Henderson had any consulting experience.
This kind of elitism infused the strategy revolution and helped foment a stratification within companies and society—we are not all in this together; some pigs are smarter than other pigs and deserve more money—that contributed to the fiercer feel of today’s capitalism.”
August 2, 2014
“But take the trouble to look for it through unsentimental eyes, and you can find evidence everywhere over the past five decades that increasing numbers of people have come to understand business not just by doing it—as it was done in the past, as company lore said it was to be done—but rather as framed and mediated by ideas. ”
September 2, 2014
“n working for a client thinking of buying a small oil company, the consultants concluded that the target’s “past and present reported profits were meaningless” to their calculations. The only measure to take seriously was how much cash the company’s operations would throw off in the future. Henderson would build on this thinking and tie it in with the experience curve in a 1972 Perspectives piece, “Cash Traps.” ”
September 2, 2014
“The philosophical underpinning of his recommendation “was balancing operating risk and financial risk.” If you had a low level of operating risk, as timber companies did, “beef up the financial risk by the use of debt, to get to the appropriate level of debt for the business.” Soon thereafter, Weyerhaeuser embarked on a program of acquiring more woodlands.”
September 2, 2014
“Tight logical relationships between the cells are what give a matrix its power. As HBS professor Clayton Christensen has observed, a four-box matrix is simply another way of conveying the relationship captured in a quadratic equation.”
September 2, 2014
“The matrix mostly addressed dilemmas around cash—which businesses in the portfolio threw it off, which ones consumed it. This offered valuable insights to clients struggling with diversification; consultants from that era still shake their heads over how many companies had bought growth businesses without realizing that these used up cash in their early days and would have to be funded from somewhere else.”
September 2, 2014
“When a client’s actual business units were plotted on the matrix (see figure 4–5) the result was often what certain consultants—most of them at Bain & Company—later came to call “the million-dollar slide”: a single image that captured and conveyed so much information about a company’s strategic situation that by itself, it was worth a million dollars in consulting fees. BCG finally had its first bona fide “product.”
September 2, 2014
“Looking back, the BCG pioneers of the matrix are prepared to admit they got the dog part slightly wrong, and not just in the nomenclature. “Being inexperienced businesspeople, we didn’t walk in there and tell [them] how to run their businesses,” says Zakon, without irony. “It didn’t dawn on us that the way to manage a dog was not to starve it, but to LBO it,” that is, sell it ”
September 2, 2014
“In the 1980s, as we will see, the complaint went up that while consultants like BCG might be good at helping you devise a strategy, they were largely useless in helping you put it to work—at “implementation” or “execution.” BCG in particular would come to realize that the charge had a lot of merit.”
September 2, 2014
“In 1976, Bruce Henderson would write and publish a Perspectives essay titled “The Rule of Three and Four.” In it, he argued, “A stable competitive market never has more than three significant competitors,”
September 2, 2014
“Bain took to the job readily—he became Vanderbilt’s director of development at age twenty-six—and from it extracted two lasting lessons. First, he found that he enjoyed and was good at working with senior corporate executives. His fund-raising territory included New York, and he ended up spending considerable time with the heads of Kodak, J.P. Morgan, Chemical Bank, ”
September 2, 2014
“and the Bank of New York. “I was fascinated by how they got there, what they did, how they thought about their jobs,” Bain recalls. He discovered that he shared many interests with them: “sports, women, business, competition, goals,” as he lists them. “I liked every single one of those guys a lot, and they liked me. I felt very comfortable with them.”
September 2, 2014
“Henderson said to him, “I need someone very smart, who understands and can work with and motivate senior executives and be respected by them. And I need someone who understands business. Normally I start with very smart people who know about business, not that they really know anything about how business works but they know about business because they’ve been to business school. You have the other two things but don’t have that. But there’s no reason why you should be behind anybody from Harvard Business School, because while they’re learning how to play nice with others, and how not to be scared to death of chief executives, you can learn some of the rudiments of a business education.” He invited Bain up to Boston to meet and be interviewed by others at the firm.”
September 2, 2014
“The proposed compensation was $14,000 a year, the average offer the firm made to graduating Harvard MBAs. The trouble was, Bain had been making $18,000 at Vanderbilt—“I was well paid.” The two men negotiated, Henderson upped his offer to $17,000, and Bain agreed to join the firm. “I tell my kids that every job change I ever made, I took a pay cut,” Bain volunteers.”
September 2, 2014
“He told friends at the time, “I feel like I’m a consultant on a desert island, writing a report, putting it in bottle, throwing it in the water, then going on to the next one.” Today, he recalls his mounting frustration: “I wouldn’t know, perhaps ever, how well I did on that study.” Which led to his ultimate question: “Do our clients make any more money because of us?”
September 2, 2014
“[I told them,] “If you’re going to play a game, for your life, with a guy who has an IQ of one hundred and ten, do you want to play tic-tac-toe, or checkers, or chess? It’s going to be chess. Now, I’m going to tell you the guy has the same IQ you do, and again, you’re playing for your life. How many chess books are you going to look at, how many old master games? Either you’re a lot smarter, or you’re a lot better prepared and you think a lot more strategically.”
And then, zeroing in,
“Because this is so complex, and because to my knowledge you’re ”
September 2, 2014
“ Implicit in BCG’s retail marketing of ideas was the notion that these ideas were available to all. Bill Bain, by contrast, wanted his consulting work to result in strategies that were distinctive, proprietary, even secret. One might say that in contrast to most of his colleagues, Bain took the power of strategy and competitive advantage really, really seriously.”
September 2, 2014
“The study had continued for two or three months when Bain found himself in a BCG officers meeting. His colleagues began asking him questions, slightly critical in tone, about what they regarded as “the problems associated with a client that lasted indefinitely.” These allegedly included tying up consultants whose consequent availability for other work would be unknown. Other colleagues worried that the open-ended arrangement was disrupting the schedule of the editing department, which had to book well in advance to prepare final reports. Even Henderson himself, the original disruptive force, seemed ambivalent.”
September 2, 2014
“By virtue of its be-there-with-you-all-the-way approach, Bain & Company stole a march on its competitors in tackling implementation. Effectively, Bain was taking the concepts from the early stages of the strategy revolution and figuring out how to turn them into behavior, in ways that BCG, already moving on to look for the next killer construct, was not.”
September 2, 2014
“This approach entailed delivering on the promise of the experience curve. “We recognized that your costs don’t automatically decline with the experience curve,” says Schaubert. “You have to manage them down.” The firm may not have blazoned forth what it was doing, but if you want to see how Greater Taylorism was first done best, you need look no further than Bain’s work with its clients.”
September 2, 2014
“The product of Bain’s efforts was to be not a report or a study—the firm’s consultants still drip with disdain at the mention of such things—but rather a strategy and, even more important, results—results that you could see first on the bottom line, then in the stock price. Fairly quickly, this value proposition was boiled down to a snappy formulation: “We don’t sell advice by the hour; we sell profits at a discount.” In practice, this usually meant relentless attention to the three Cs—costs, customers, and competitors—a distillation of the essential elements of strategy that Bainies still ritually invoke. Particularly costs.”
September 2, 2014
“Bain got steadily better at exploiting the Freedom of Information Act to gather intelligence on competitors from their filings with the government, as well as at reverse-engineering techniques like those it used for Bausch & Lomb. The search evolved into one for best competitive practices.”
September 3, 2014
“The one element of continuity through all this, dating back to James O. McKinsey, was an instrument called the general management survey. The preferred diagnostic of many early consulting firms, it represented a sort of standardized audit of a company’s organization, procedures, records and budgets, all supposedly aimed at gauging the effectiveness of the client’s management.”
September 3, 2014
“Lightning flashed through my mind,” says Gluck. “What do I say to this guy? Do I tell him the truth? But I grew up in a tough neighborhood in Brooklyn, so I said to him, ‘I don’t think we know what we’re doing.’” “What?” Patton replied. Gluck elaborated: “We go up there to the client, and we show them a chart that says this is the kind of revenues you need, what we call a strategic gap analysis; here’s what your projects are going to be, there’s a big gap in here. The Corning guy would say back to us, ‘Don’t worry, we’ll fill it with stuff out of our laboratories.’ Which means nothing happens.” Dismayed, Patton said, “We’ll see about this.”
September 3, 2014
“ We took a hard look at our processes for selecting and evaluating consultants and at the quality of our knowledge.” This is McKinsey-speak for the realization that it had expanded too quickly and promoted people who weren’t as sharp as they should be, particularly in the face of mounting worldwide economic troubles and increasing competition from the upstarts at BCG and Bain. ”
September 3, 2014
“ The head of the technology practice asked Gluck to make a presentation on the electronics industry for one such occasion. Gluck initially refused, finally acceding to the request only on the condition that the consultants interested in attending be flown to Bermuda to conduct their deliberations. Today, he argues that it was the first of what was to become a grand—in many ways—McKinsey tradition: the off-site retreat to create new knowledge.”
September 3, 2014
“ The first, primitive phase consisted of mere financial planning. Here planning was “viewed as a financial problem” and consisted of little more than the annual budgeting exercise. Rather to their astonishment, the consultants found that “in well over half of the business enterprises surveyed (including a number of highly successful companies), formal planning has never evolved beyond annual budgeting.”
September 3, 2014
“ The clouds part, and the planners “suddenly realize that their responsibility is not so much to chart the future,” which is tough to do, “as it is to lay out for management decision the key issues that face the company.” Lyrically, the McKinsey paper labels this spark “issue orientation.”
September 3, 2014
“Whereas McKinsey had emphasized “the situational nature of strategy development”—as in, “It all depends”—its competitors had developed a systematic approach to the subject and had even gone beyond this to actually demonstrate “a capability to execute it.” To Gluck, the buffs were conversant with the state of the art, always debating its fine points, particularly implementation, “supported by standard analytical approaches” and better at empiricism than the Firm”
September 3, 2014
“By the early 1980s, Gluck argues, McKinsey was on its way to becoming a firm of strategy buffs. To be sure, there were still pockets of resistance, or uninterest, mostly growing out of the perceptions of many at the Firm—perceptions that endure to this day—that its greatest asset isn’t its ideas, or even its people, but rather its dazzling array of clients and the continuing strength of its relationships with those clients.”
September 3, 2014
“Up through the 1970s, the closest approximation HBS had to a course on strategy was a two-semester offering named Business Policy. Required of all students in the second, final year of the MBA program, it was supposed to serve as the capstone of their education, showing them how to integrate the different disciplines they had studied—finance, marketing, accounting—as would the “general manager” of a business, the person with profit-and-loss responsibility for its operations overall.”
September 3, 2014
“Writing cases that were to be cornerstones for his Business Policy course, Andrews found that contrary to what contemporary economists would have predicted, different companies in that industry actually had different cost structures and different levels of profitability, mostly because competitors pursued different product and sales strategies.”
September 3, 2014
“Economists have been harassing my idea of the concept of competitive strategy ever since,” Andrews told me, “in the sense that the human, and the moral, and the ethical dimensions are largely ignored. Michael Porter and that group are working within the concept, but have departed from it—the ethical and moral elements”
September 3, 2014
“The real reason I got interested in strategy was Roland Christensen,” says Porter, using his teacher’s given name, as few others do. “I found this guy and this subject so compelling; it just ignited a tremendous passion for this holistic, integrated, how-to-get-all-these-pieces-to-come-together” approach. Porter ties the theme in with what became his life’s work: “What ”
September 3, 2014
“I’ve come to see as probably my greatest gift is the ability to take an extraordinary complex, integrated, multidimensional problem and get arms around it conceptually in a way that helps, that informs and empowers practitioners to actually do things.”
September 3, 2014
“At that stage in IO’s history, he says, the view of industry structure was “overwhelmingly dominated by just two factors: seller concentration [what percentage of the market did the top four or top eight command] and barriers to entry,” of which three or four types were posited, such as scale. “When I put that next to the industry studies I had looked at in the business school, I said, ‘No. Fails. Not enough. Too stylized.’ ” He became an even more avid student of business school case studies of individual industries and companies, as well as articles from magazines such as Fortune and Forbes. “I just read and read and read and read.”
September 3, 2014
“The standard criticism of the five-forces framework, particularly from consultants, is that it’s static, that unlike the experience curve, say, it doesn’t help predict how the competitive situation in an industry will evolve or how the positions of the different players shape up or shake out. Porter doesn’t buy that. ”
September 3, 2014
“urs of preparation his mentor put in before each class discussion, observed the sessions, and frequently hashed over with the master afterward the how-to of the Socratic magic he’d witnessed. The pupil would go on to eventually put on wildly popular courses himself—and routinely command fees in the high five figures for speeches to business audiences—but he still doesn’t rank his teaching abilities as high as he rates Chris”
September 3, 2014
“The bigger oddity about Competitive Strategy for our history is that most of it, fifteen out of its sixteen chapters, isn’t actually about strategy. Rather, it’s about industries and how to analyze their structure, as Porter readily admits: “The Competitive Strategy book is basically a book about industries, because that’s what I’d worked with.”
September 3, 2014
“ There were essentially three strategies a company could choose, he posited: low-cost leadership (beloved of fans of the experience curve), product differentiation (making your offering so distinctive that you could charge more for it), or market specialization (pick a niche and dominate it).”
September 3, 2014
“As head of Business Policy I, Porter began introducing his frameworks and takeaways into the curriculum that all MBA students were required to take. Partly in recognition of this, in 1986, the course’s name was changed to Competition and Strategy. As course head, too, Porter could spearhead the other critical sally in his “pedagogical battle,” importing PhDs as faculty members at the expense of DBAs trained up in the school’s own doctoral program.”
September 4, 2014
“You need to understand the [underlying] economic logic so you don’t have to reinvent the wheel every time. And that’s my job, my business. There’s all this stuff about how do you create an organization that can both understand and go through the process of doing this, and implement it well, and commit to it, and all that is really, really important stuff. But that’s complimentary” to his own efforts.
Within a year or two of Porter’s initial triumph, it was to become startlingly apparent just how really, really important—and popular—the human stuff actually was.”
December 18, 2014
“What is the best way to define the consciousness of a company? To capture it as a purposeful entity? Corporations aren’t conscious beings, of course, but are legal constructs that are also agglomerations of individuals, each with his or her own mind, bound together by agreement, law, and custom. But if it were in your interest, perhaps because you were running one, to get your mind around the company as something akin to a person, self-aware, with aspirations and fears, capable of conceiving action and taking it, what would be the most useful framework, model, or construct to adopt?”
December 18, 2014
“Herbert Simon, a polymath—cognitive psychology, computer science, public administration, sociology—and professor who in 1978 won the Nobel Memorial Prize in Economics for his work on, as the citation read, “decision making within economic organizations.” Probably his most memorable finding was that those organizations didn’t abide by theories of rational decision making. Instead of choosing the path that economists would say leads to the best possible result, they will often pick an option that keeps contending internal factions at peace”
September 4, 2014
“To page through Peters’s 1971 copy of March and Simon’s book Organizations is to follow the smoke trail of a mind on fire: underlining everywhere, marginal notes, words circled, arrows linking one passage with another.”
September 4, 2014
“In Search of Excellence was finally published in October 1982, to modest expectations on the part of the McKinsey firm. Partners were told it was so unlikely that the book would sell that they should use copies primarily as Christmas gifts to clients.”
February 25, 2015
“Peters and Waterman continually pointed up where the typical, not-so-excellent company fell sho”
September 4, 2014
“The fundamental contribution of BCG is not the experience curve per se, but the ever-present assumption that differences in cost (or efficiency) are the fundamental components of strate”
Notes From: Walter Kiechel. “The Lords of Strategy: The Secret Intellectual History of the New Corporate World.” iBooks.
