Walter Kiechel
Walter Kiechel is the author of The Lords of Strategy: The Secret Intellectual History of the New Corporate World, which recounts the rise of the big consulting firms and how they came to influence every aspect of the competitive behavior of today’s corporations.
Keichel is a former managing editor at Fortune magazine, and was also the editorial director of Harvard Business Publishing from 1998 to 2002. We asked him about the impact of the ideas of pioneering strategy consultants and academics, and what’s next in the evolution of business ideas.
McLaughlin: How do you define the “new corporate world” in the subtitle of your book?
Kiechel: It’s the global world of business that has evolved since the mid-1960s, and it is quite different from the world that preceded it.
One significant change is that industrial companies, which reached their peak of power and influence in the early 1970s, are giving way in importance to service companies. Also, we have seen remarkable deregulation in sectors that used to be regulated, including telecommunications, airlines, and banking.
But the most important difference in the new corporate world is the increasingly intense, globalized competition. Companies now find themselves facing competitors from places with names they can scarcely pronounce. Free market forces are at work where they’ve never been before, whether that’s geographically in places like China and Russia, or in new sectors of business.
McLaughlin: Why do you say the intellectual history of this new world is a secret?
Kiechel: Well, I think it’s a secret in three senses. First, I find that many businesspeople are ambivalent about intellectualism and don’t want to be thought of as intellectuals. As a result, the power that ideas had to change the way people ran their organizations is not given a lot of credit.
Second, I think the role consultants played has also been a secret. That’s understandable, since companies often don’t want to talk about what consultants do for them, and consulting firms don’t like to talk about their work for specific clients.
And finally, the intellectual history of the new corporate world is a secret in the sense that most people just don’t know a lot about what happened or about the people who were involved.
A good example is Bruce Henderson, the founder of the Boston Consulting Group (BCG). When he died in 1992, the Financial Times said that few people had had as much impact on international business in the second half of the twentieth century as Henderson. But when I ask business audiences, I’m constantly amazed how few people recognize him or know what he did.
McLaughlin: Hasn’t corporate strategy always been a fixture in organizations?
Kiechel: My research certainly indicated that was not the case. Many people assume that companies have always had strategies. They think leaders like Henry Ford, J. P. Morgan, and Andrew Carnegie must have had strategies. It’s just not a fact.
Companies didn’t use the word strategy much until the 1950s and 1960s. And even then, they were somewhat confused about what it meant. Back then, companies didn’t have an intellectual framework to pull together their thinking about the three Cs that are at the heart of any strategy, that is, costs, customers, and competitors.
Of course, companies had plans. Usually, the plan was to continue doing the same thing, but vow to do it better next year. A company’s leaders would say, although we had a terrible year, things are going to change for the better.
But there was no deep analysis behind those plans. They didn’t say, we’ve got a two percent share of a market that’s going nowhere, so how realistic is it to expect that our business is going to turn a corner or take off?
McLaughlin: You characterize the emergence of corporate strategy as a revolution that overshadows any other change in business in the last fifty years. Why do you think consultants led the thinking on corporate strategy, instead of corporate executives?
Kiechel: For one thing, corporate leaders had to figure out the answers to the immediate problems in their businesses. Maybe they were trying to find a way to increase business or to fend off competitors.
Consultants were aiming to help solve those problems, of course. But the consultants were also, at least in the early stages of the strategy revolution, very interested in figuring out how the larger world worked.
With their access to information across many companies and industries, they could ask questions like: Are there underlying principles of microeconomics that explain what we’re seeing here? Can we put businesses on a matrix that would show why some are doing better than others? So consultants were looking for explanatory mechanisms, while company executives were looking for more individual solutions.
McLaughlin: It seems that corporate strategy has a singular focus on creating shareholder value. Was that always its goal?
Kiechel: This was one of the most surprising and interesting findings in my research. If you look at the writings of the strategists in the 1960s and 1970s, you’ll find very little reference to shareholders or shareholder value.
If you asked about the overriding goal for strategy, they would say well, it’s to build and achieve a competitive advantage. But there wasn’t much in there about the shareholder. That emphasis evolved later with the rise of the stock markets.
McLaughlin: You say that strategy consulting firms might represent a model of what organizations need to become to survive as the century moves on. In what ways are they a good model?
Kiechel: Look at the three biggest strategies firms–BCG, McKinsey, and Bain. When it comes to their governance and how they manage themselves, I think some of what they do is going to be absolutely critical for twenty-first century companies to succeed–whatever business they are in.
They are terrific at attracting top talent and developing that talent. They give their people a very clear sense, from their first projects, how they’re doing. And they have an effective meritocracy. It’s still essentially a pyramid structure, but they treat people fairly, and evaluate them with care and attention.
Then, if they do leave the firm, the firm often helps them find a new position. The alumni of these consulting firms are a loyal constituency. How many other kinds of companies do you find where the people who are let go are that faithful or so active in alumni associations?
It’s also true that these organizations are truly global. I don’t know any other businesses (even big companies that claim to be global) that have the same mix of talent drawn from all over the world in leadership positions. Look at the corporate boards for allegedly global giants like Nestle or IBM, for example, and you will see few people outside the US or Europe.
For BCG and McKinsey in particular, the bulk of their revenue sources are global, and both firms are headed by foreign nationals.
It’s also interesting that, unlike most other corporations, many consulting firms elect their own leaders. And, for the most part, those processes don’t leave great bitterness or risk within the firm.
That kind of democracy is rare in business but also something that more and more companies will need in the future. Now, it’s true that the consulting firms are privately held, and maybe you can’t do that if you’re a publicly held company. But you can do things that are more like that.
McLaughlin: What else surprised you in your research for this book?
Kiechel: Well, I was impressed with the degree to which, particularly from the 1960s through the early 1980s, consultants were what I call flaming swords of truth. That’s a purplish overstatement, I suppose, but they were interested in empiricism and in cracking the case.
They were intent on getting the facts and understanding the world—sometimes at the expense of developing client relationships. In some cases, it was actually to the detriment of clients.
You hear stories of consultants in those days who became enamored of their elegant solutions but when they gave presentations to clients, nobody could understand the solution, much less put it to work.
That changed as consulting firms became more committed to sustaining long-term relationships with clients and working with them, not just assignment by assignment, but year in and year out.
The other thing that surprised me was the intellectualization of business. These days, most people don’t learn how to run a business at the knee of a parent in the family company like they used to. No—they go to business school.
Also, consider the amazing number of business books that are published each year. In Search of Excellence, which came out in 1982, was the first business book to become a number one best seller. But last year, there were 8,400 new titles on business and management published just in the US.
What makes it ironic, as I mentioned before, is that so many businesspeople hate the thought of being considered intellectuals, yet much of what they do is to develop and use ideas as powerful tools.
McLaughlin: Do you think there are any ideas as revolutionary as corporate strategy on the horizon?
Kiechel: I have a sense that big ideas are just over the horizon. Some people can tell you what they’re likely to address, but they can’t actually identify the idea yet.
What they’re likely to address is the question of what a corporation is supposed to do besides maximize shareholder value. And they’re also going to address the issue of how people fit into strategy.
Most of the consultants who originally invented the concepts about strategy didn’t really think about the human dimension. How do we incorporate the hopes, ambitions, and talents of the people who are carrying out the strategy we generate? As I say in the book, where are the people in the strategy?
The next central idea will also address the porosity of the boundaries between corporations, governments, and the not-for-profits. I see a lot of companies trying interesting partnerships with nongovernmental organizations in many parts of the world. That new big idea will help us think about the overlapping responsibilities of governments and corporations.
McLaughlin: Thanks for your time.
You can find out more at http://lordsofstrategy.com.
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