The Lords of Strategy: The Secret Intellectual History of the New Corporate World

If you're anything like us, you might be wondering how that could possibly be. After all, organizations have long competed successfully against their rivals. Well, in some ways that's true. And 50 years ago, individual companies did have a grasp on the basics. They knew their costs, they knew their customers, and they knew their competition. But while individual business leaders were making good, informed choices about where to steer their companies, the principles of putting together a sound corporate strategy had certainly not been defined. There were no books on the subject, and there was no real systemmatic approach that new leaders could follow. In fact, few even realized that such a thing would be helpful.

All of this changed with the creation of a new type of business, the consulting firm. The innovative services offered by the legendary Boston Consulting Group, McKinsey and Company, and Bain and Company revolutionized the corporate world and changed the way we do business forever. They did it because they were obsessed with finding out why some companies fail, and why some succeed.

And the tools they created to get to the bottom of these issues, like the McKinsey Seven S Framework, the Boston Matrix and Porter's Five Forces, are still being used by managers and strategists all over the world.

Ok, you're thinking. It sounds like it could be interesting. But why should I care?

Well, this history is relevant because it gives us the back story of today's corporate climate and our economy. We get to discover what corporate strategy is, why organizations use it, and how it's changed the world in the past 50 years.

For instance, why do CEOs get paid so much more today than they did just twenty years ago? We can thank strategy, in part, for that one.

Or, why do company shareholders have so much power? They didn't use to. Again, we can partly point the finger at strategy for this too.

These are just two of many examples that show just how much strategy has influenced today's business world.

Reading "The Lords of Strategy" also gives us an inside look at how some of the world's most famous strategists got their start, and revolutionized the companies they were consulting for. We get to see how they created the ideas and tools that we simply take for granted today.

All of this gives us a better understanding of why companies today do what they do. If you've ever wanted to learn more about strategy, or you're on a quest to climb the corporate ladder and don't have time to get an MBA, then "The Lords of Strategy" is for you.

And don't worry. Although this book can be a bit dry at times, for the most part it's highly readable and engaging. The author makes the stories of these legendary corporate strategists come to life, and as a result you can't help but get pulled along through history. The author, journalist Walter Kiechel III, is the former editorial director of Harvard Business Publishing and the former managing editor at Fortune Magazine.

So, keep listening to learn about the three distinct phases that strategy has evolved through over the past 50 years, how the so-called "experience curve" transformed one company's sales, and why it often pays to bring strategic planning in-house.

The book is divided into 16 chapters. And although we can't come close to covering them all, we can cover some of our favorite stories.

It's helpful, though, to start with an overall look at how corporate strategy developed. When it was first defined in the early 1960s, strategy was all about assessing your business's costs, whether there was scope to drive these down as the company grew, and how they compared with your competitors'. Analyzing costs in this way would inform decisions about whether the business should be expanded.

Strategy's second evolution, from the late 1980s to today, focused on processes and procedures. Basically, how companies get things done.

Its most recent evolution, which started over the past few years, is the focus on people. This is a harder stage to define, because no one seems to be sure what focusing on people really means. In some organizations, it involves nurturing innovative thinking, while in others, there's a more general emphasis on talent management and development.

But let's go back to the beginning, when strategy was the baby of the business world. Our first story starts in the early 1960s, with the newly-formed Boston Consulting Group. During this time, American companies were just coming off a huge wave of unprecedented growth. But now they were facing competition from unexpected places, namely foreign manufacturers and smaller upstarts. And they had no idea what to do about it.

Boston Consulting Group, or BCG, was the first to create what they called the "experience curve." Basically, this tool shows companies that, as they make more goods, their costs will start to decline systematically at a rate that can be predicted accurately.

To us, this is just common sense. After all, the more you make something the more efficient you'll get at making it, right? Well, back then, the concept was pretty revolutionary. And, it changed the way Black and Decker did business.

In the early 60s, Black and Decker's sales were floundering. But thanks to the experience curve devised by BCG, Black and Decker renegotiated its costs with all its distributors, which was no easy feat. Basically, Black and Decker had to convince everyone they worked with that if they sold parts for a lower price, Black and Decker would sell more overall products. This meant greater total profit for everyone.

Black and Decker also drastically lowered their prices. Using the experience curve, they saw what their costs would be years down the road. So they priced their products in the present, based on what costs would be in the future.

As a result, they blew their competition out of the water, and sales soared.

This was a great story to bring up early on in the book. It really illustrates just how effective a good strategy can be. We think readers, especially those who are new to management and strategic thinking, will really get a lot of value from reading these early chapters.

Another story we really enjoyed was in chapter eight. Here, we get to learn how Tom Peters and Robert Waterman created the McKinsey Seven S Framework, a business tool that is still widely used. The Seven S Framework details the seven factors for corporate excellence.

In 1977, Tom Peters had just graduated Stanford with an MBA. He was fascinated by organizational behavior, and after taking a few jobs here and there he finally got hired by the legendary consulting firm, McKinsey and Company. His role was to figure out what made organizations effective.

It was an enormous task, and Peters went all over the world looking at real companies to see how they worked. But he began to realize that strategy and structure weren't the only reasons why some companies were succeeding. There were other factors in play. These factors were subtle, and no one was talking about them, but they were playing a very important role in these successful companies.

Peters knew that if he could identify what these subtle factors were, if he could pinpoint all the different elements that were making these successful companies tick, then he'd have a roadmap to help other, less successful companies grow stronger.

Working alongside Robert Waterman, the two created the McKinsey Seven-S Framework. The model looks like a molecule linking all the different factors together, which are: skills, staff, style, systems, structure, shared value, and of course, strategy. These elements, Peters and Waterman decided, are what make a successful company.

Peters' research into the Seven S Framework ended up being the foundation of his book, "In Search of Excellence," which stayed on the New York Times bestseller list for over two years. You can hear about that book in a different Book Insight podcast.

It's interesting that although there were some great strategies and models coming out of the large consulting firms, most companies weren't seeing a direct benefit of these ideas. Sure, they were paying big bucks to hire firms like BCG and McKinsey. But when they were asked, the consultants admitted that fewer than ten percent of their clients were successfully implementing the strategies they recommended.

These consultants were coming up with good stuff, but there was no next step. They'd do the research, create a strategy, and then leave it up to the company to do the actual implementation. And most of the time, the company failed to implement the customized strategy successfully and floundered as a result.

This started to change in the mid 1980s with David Hall, a consultant for BCG. He began to see how fruitless all this strategizing was. After all, if companies didn't have the knowledge to actually use these great tools and plans, what was the point?

So, he decided to change things with one of his clients. He let them take complete responsibility for developing their own strategy. They would create their own team of analysts and project leaders, and do their own research and analysis. Hall knew that if the company did most of the work themselves, they would be far more willing to take ownership of the findings. And because they'd already have an insider team in place, the implementation would probably be more successful.

What was Hall's role? He was there as an expert guide for the team.

He also turned out to be right about having his client do the work themselves. The company had a successful implementation, and their revenue went through the roof as a result.

Although Hall's innovative model didn't take off among other firms like he hoped, it did create a new consulting model within BCG.

We thought this was an enlightening story that any manager could use with his or her team, whether you're strategizing or not. If people work directly on a plan instead of being given one, they're far more likely to work hard to implement it successfully.

The stories that make up "The Lords of Strategy" are fascinating because they allow us to see the evolution of ideas and people's way of thinking. We get to see the change in focus from one decade to the next, leading up to the present day.

This evolution is useful for managers, because it can help you identify where your own company is currently at. Is it primarily focused on costs, like the companies of the 60s? Is it focusing on processes and becoming more efficient, like strategy's second stage? Or, has it made the transition to focus on people?

If you need to develop your own strategy, knowing the culture of your organization, and where its focus lies, can help you angle it so decision-makers are more receptive. We thought chapter 12 was particularly interesting. Here, we learn how strategy has influenced corporate earnings, which has led to some of the incredible salaries that CEOs make today. There are dozens of influencing factors, but the evolution of strategy's impact on earnings and salaries is an eye-opener, so this is a chapter you won't want to miss.

So, what's our last word on "The Lords of Strategy"?

Well, it's definitely an interesting look at the consulting icons who created corporate strategy as we know it. We found it fascinating to read about how they got started, and how they created some of the world's most well-known business tools. These stories help bring these business tools to life which, in turn, can add a new dimension to using them in your own work.

As you've heard, the book is a bit dry at times. If you're only vaguely interested in corporate strategy, you might find your attention wandering at times. But to give the author credit, he did make it more engaging than the title suggests.

It's also important to realize that this isn't a how-to book on strategy. Yes, you do learn how different models and frameworks work, and how they were created. But you won't learn directly how to implement these tools into your own corporate strategy.

In a way, the book is really a history lesson. But, that doesn't reduce its value. Historians have always said that only by looking at the past can we understand the present, and that certainly holds true here. Reading these narratives helps us see how our corporate culture developed the way it has, and where we might be headed in the future. And we feel that's where the value lies.

So if you think you'd like to learn about the birth of strategy, and how it has gone on to influence the corporate world as we know it, this is where you'll find it. If you're looking to expand your knowledge and understanding about strategy, or just have some interesting fodder for conversation at your next conference, then this is the book for you.

"The Lords of Strategy," by Walter Kiechel the third, is published by Harvard Business Press.

That's the end of this episode of Book Insights. Thanks for listening.