PTW/PI All-Stars Book Club – Chapter Five
The Business of Strategy Consulting
Source: Saturday Night Live
Welcome to Chapter Five of the Playing to Win/Practitioner Insights (PTW/PI) book club. Again, in the spirit of a book club discussion, I have responded to all previous comments and will continue to do so. Of the 37 all-star pieces out of the 260 in the series, the randomizer picked The Business of Strategy Consulting as the fifth chapter. This one is the first from the third biggest category – screeds. You can find the whole PTW/PI series here.
What are Screeds?
Generally, I try to write measured, balanced and carefully argued pieces. I would classify 248 of the 260 PTW/PI series pieces as such. The other twelve aren’t. They are screeds in which I just tee off on a subject. A perfect exemplar is My Least Favorite Business Book of All Time. I simply explain why I think it sucks so bad. I don’t give the pluses and minuses of the book or reference laudatory reviews.
The reason is that I have lost all patience on the subject in question, and I let that drive my writing. It is probably not me at my best.
However, it turns out that readers really like them. Seven of the twelve made the all-star list – over four times the number that would be expected. And two of the other five were rated in the top quartile – nine in the top quartile when three would be expected. So, maybe I should be doing more than one every 22 articles. Should screeds be my guilty pleasure? Let me know your thoughts.
My Reflections on This Piece
The original piece focuses on two major choices made within the business of strategy consulting in the 1990s and their consequences three decades later. Three firms – McKinsey & Company, Boston Consulting Group and Bain & Company – dominate the business of strategy consulting due to their immense size and I will refer to them by the moniker often used: MBB.
Their first major choice was more of a discovery, which was that strategy was a small billings offering when compared to emerging huge billings offerings like post-merger integration, overhead cost reduction, digital transformation, etc. By the 1990s, that had become totally obvious and MBB followed the money, which reduced strategy to a tiny product line for them. Of course, they still feature strategy prominently when describing themselves because it sounds sexy. However, the result is that MBB has contributed mightily to strategy becoming a lost art – which I talked about in The Lost Art of Strategy and will discuss in more detail next week. For that reason, I won’t focus on it here.
I will focus on the second choice and reflect on it more than I did in the original piece – making this a bit of a screed on a screed. The critical MBB choice in the 1990s was to organize by industry practices – e.g. banking or pharma or consumer packaged goods. Naturally each industry practice wanted to grow and the obvious path to growth was to consult to ever more clients in the practice’s industry, in part because companies outside its industry were property of other industry practices within the firm.
Clients welcomed the industry practice approach because they liked having the consultants knowledgeable about their industry. But that morphed into MBB selling that they know the industry because they have worked for most, even all, of the client’s competitors. That became the competitive selling feature: we have worked for more of your competitors than the other strategy firms. That morphed further into the sales pitch: our industry practice can bring to bear for you all the insights that we have garnered from consulting to most/all of your direct competitors.
I was blissfully ignorant of how far this had progressed until I returned to doing more intensive strategy advising after my stint as a business school dean. Since I decided to operate as a solo practitioner, CEO clients would ask me to help them assess proposals for hiring MBB for projects far too large for me to handle. One such case was highly illuminating for me. The CEO of a huge global company asked me for my advice on proposals for a major assignment that had been submitted by MBB (plus others but by the time I was involved, it was just MBB in the running).
These elements were central to the proposal:
[Nomenclature: MBB – the firm making the proposal; client – the client; industry – the industry in which client competes; competitor – direct competitor to the company requesting the proposal; activity – area of study within the overall study. Disguise: I have arbitrarily changed the number of industry competitors to ten – my made-up number. But I guarantee that all of the companies MBB mentioned as sources of data/insights are truly consequential global competitors of client.]
- “We will leverage the expertise in the client-MBB team, MBB’s global industry practice (which serves 90% of the top ten industry players).”
- The proposal described MBB having recently performed almost the identical project for a named competitor who is among those top ten.
- It gave a snapshot of benchmarking data from four of those ten major competitors – all of which were MBB’s clients.
- It did that again on another benchmarking topic, naming most of the top ten competitors.
- “To define a role for activity, we can provide you with a perspective on how other competitors setup this function,” and it named three of the top ten competitors.
- It asserted that “competitors have had a massive focus on activity and launched group-wide programs,” and provided a detailed case study from its work for one of the competitors.
- It repeated the same for another activity and another competitor.
- It closed out with the blanket assertion that “Our former and ongoing project work and discussion provide us unique insights.”
The other two competing MBB proposals were somewhat less egregious. But they used the same core selling pitch: we will leverage what we learned from working for your most important direct competitors to shape our advice to you.
It truly makes me hate my old industry.
Obviously, there is a big ecosystem of ‘strategy consulting firms’ selling their capability to share knowledge from a client’s many competitors with that client, and companies seem inclined to buy services on that basis.
It reinforces my view that neither seller nor buyer really knows what strategy is. If the ‘strategy consulting firms’ actually did know, they would die of shame from behaving the way they do. They would realize that it is the antithesis of strategy to tell your next client, who is a competitor of your last client, to do exactly what your last client did. That is helping your clients make an indistinct rather than distinct set of choices. I will give them the benefit of the doubt. They do so little strategy that they have forgotten what it is. They only know planning – which is an attempt to converge to the same set of choices as your competitors – which this approach facilitates wonderfully. However, it is misleading to call such service ‘strategy.’
The vast majority of executives who hire them also don’t know strategy and are happy to be told to make the same choices as their competitors. That having been said, I am not sure that they really internalize that what they do on the consultant’s advice will form the case study used to sell and then help one of their direct competitors replicate what they have done. That isn’t wild speculation. That is the exact MBB promise in their proposals! But if you don’t care about strategy, I guess that is OK.
That notwithstanding, it is fully nuts if you are in the top tier – say top quartile or even tertile – of your industry. If you hire any consulting firm that operates with industry practices, it will observe everything you do better than the rest of the industry and pass it on to most of your competitors, helping them to catch up. That is not my idle speculation. That is what is promised above in the proposal – verbatim. It is executive malpractice to facilitate that very thing.
Actually, the only executives that are smart to do it are in the bottom half their industry in performance. Any insights transferred from top half competitors by the industry expert consultants will elevate your performance. For you, these consultants are like manna from heaven. If your company truly sucks, you should get as much of their advice as possible.
Basically, this is all the product of mass insanity. The only way to stop it is for executives of top tier companies to stop letting the industry expert consultants inside their tents. Then the consultants can’t kite valuable insights around the industry. Instead, they will only be circulating drab insights from one laggard to the next – no fun at all. That will solve the problem. Clients will quickly tire of paying top dollar for drab insights from losers. The fuel for the insanity is valuable insights from top-performing companies.
Reader Comments
This was one of the most responded to pieces in the overall series. And gratifyingly, the responses were virtually all positive, which is unique. It received: “a breath of fresh air,” “I absolutely loved reading this,” “superb read,” “this article is spot on,” “beyond refreshing,” “great provocation,” “big thank you,” and “best I’ve read so far on the subject.” Nice!
There was lots of recognition of the dynamics I laid out, especially from strategy consultants. They wistfully reflected on the flow away from working on strategy – even though the firms love to keep describing themselves as strategy firms or experts in strategy. There was also agreement with the view that strategy is becoming a lost art. However, some expressed surprise at the current state of the industry. A good overall summary was: “So, if I got you right, consulting as a business is not going away but we have to change how it’s done?” Yup.
A couple readers tried to let MBB off the hook, asserting that selling industry expertise can provide value to clients – yes, but only to crappy ones – or that their R&D can provide innovative solutions – who knows, maybe.
One saw a parallel with what is happening in the ad agency world, which I thought was interesting.
My own strategy choice – which is to work with only one company in an industry – was polarizing. One commenter thought it was far too limiting. But two loved my declaration that “strategy is choice and those are mine.”
One speculated that my advice to companies is that they need to build their own strategy capability. They are absolutely correct. Helping companies to build their own strategy capability is the core feature of my offering.
The best single line in all of the comments was: “Strategy should challenge the norm, not package it.“
Without further ado, the original article…
Chapter Five
I have been asked repeatedly to write about the business of strategy consulting. I don’t love the idea because I don’t much like the business of strategy consulting. But I realized that shouldn’t stop me from writing a piece on a subject about which readers have intense interest. Hence, this Playing to Win/Practitioner Insights (PTW/PI) on The Business of Strategy Consulting: Cheeseburger & Pepsi.
A Brief History
The industry was created in 1963 with the foundation of Boston Consulting Group (BCG) by Bruce Henderson. Others might argue that there were firms that practiced ‘strategy consulting’ before that, but I think it was all a rounding error before BCG, which grew spectacularly and defined a category. In 1973, Bill Bain and six other BCG partners left to create Bain & Company. In 1983, Monitor Company opened its doors. McKinsey & Company, a firm that was created as a cost accounting firm in 1926, realized in the 1970s that it would be left in the dust if it didn’t enter the strategy consulting field and did so aggressively.
This piece resonates deeply with me. It brings back vivid memories from the early 2000s, when I worked as a Presenting Analyst at a boutique consulting firm in South Africa. We were, in many ways, a miniature McKinsey-in-the-making - consciously trying to replicate the MBB model, but pitched at mid-sized companies rather than corporates.
My job was essentially to do exactly what the author describes: use the "we've seen your competitors" sales pitch to convert our at-cost analysis engagements into fully billable projects. Sitting across the table from a client, leading with "we've worked with firms just like yours" was the move. It worked often enough that no one stopped to ask whether what we were actually selling deserved to be called strategy.
Looking back now, the author's distinction between strategy and planning cuts right through what we were doing. We were helping clients converge - toward industry benchmarks, toward what the competitor down the road had just implemented. Dressed up as insight. Sold as strategy.
A sharply observed piece. The shame the author mentions is real - and perhaps belated.
Loved the original article, and love this new discussion too. Two comments:
(1) "This was one of the most responded to pieces in the overall series."
From my own experience, I think a big reason why requires understanding the journey of the *careerist strategy consultant*. They (we?) join an MBB firm thinking it's AMAZING. They're going to learn how to do strategy.
But then "neither seller nor buyer really knows what strategy is." Imagine being a recent grad, or an MBA student (*another* can of worms…).
Some of them DO get absorbed in the cheeseburger-and-pepsi grilling and find that's enough. The money certainly helps. Others start questioning why "strategy" means running their firm's proprietary methodology® over and over, without ever asking which competitor frameworks work better, or whether the methodology itself holds up.
At some point, if they keep pulling that thread, the latter group may become your readers :-)
(2) "We will leverage what we learned from working for your most important direct competitors to shape our advice to you."
I think there's a vicious cycle between selling and delivering here. Clients want certainty. "Having worked for your competitors" gives them that certainty. They don't see the cost of anchoring on convergence. Delivery becomes more homogeneous. More cases in the industry means more "claimed experience" with the next prospect. Repeat.
The only way to break the cycle is if a client decides they WANT something genuinely different, to avoid convergence. But then the consulting firm can take THAT different thing they helped craft, walk it over to competitors, and help THEM converge. It's a trap with no obvious exit.
Maybe a firm that sells on METHOD rather than *claimed experience*, as Monitor tried to do, combined with enough CLIENTS willing to sustain such a firm instead of watching it get absorbed by a Big Four? Built on a model that doesn't require eternal growth the way the partnership/cravat one does?
Tough problem.