The Boston Consulting Group Caused the Recession

Like all good conspiracy theories, this one may have a few loose links.  But work with me here–it’s a good story.

The 70s: When Strategy Became Competitive Strategy

Back in the 60s, Bruce Henderson, chafing at Arthur D. Little, re-conceived competitive strategy.  He founded the Boston Consulting Group, who in the 70s introduced the world to concepts like the experience curve, the Doom Loop, and the barnyard strategy matrix

Together with Michael Porter, they redefined strategy from a vague, military idea, to a disciplined, quantitative analysis based on a Hobbesian view of the business world: a State of Nature as Competition.  Competitors lurked everywhere–including masquerading as your suppliers and your customers.  Henceforth, all talk of "strategy" would implicitly have “competitive” as a leading adjective.

It is hard to describe today the impact this new ideology had on the business community.  Suddenly the world made sense—everything was about competition, and everything was quantitative.  It was about winning, and the winner was the one who ran the numbers best.  Peter Drucker was so 10 minutes ago–now, if you couldn’t measure it, you couldn’t manage it.

The 90s: When Organizations Became Processes

In the early 90s, Michael Hammer  and James Champy wrote Reengineering the Corporation, and the other shoe dropped.   The other shoe was business process re-engineering.  Pre-Hammer, companies were functional organizations.  Post-Hammer, they were bundles of processes. 

Functional organizations were messy things that needed coordinating, leading, managing.  Processes could be broken out, modularized, tinker-toy-rebuilt, outsourced, and re-assembled—and despite Hammer’s later protestations, the idea remained attractively impersonal to its fans. 

The 00s: Metrics, Competition and Process Prepare the TinderBox

BCG, B-schools and other leading business thinkers embarked on a decade of exploring the implications.  The Holy Grail of business had become sustainable competitive advantage, which produced economic value added, which produced maximal shareholder value. 

You got there by achieving global scale in every business process: if you weren’t #1 or #2 in any process, you outsourced it to one who was.

Outsourcing to achieve scale through best practices meant multiplying transactions, reducing time-frames, and replacing messy relationships with tightly written contracts–or, better yet, markets, the truly impersonal solution.  Performance was quantitatively defined, included not only in contracts between companies, but in employee relationships with people (who were renamed “human capital” to fit the new business Esperanto—finance).  No need to inspire or manage through people; just craft a blend of  metrics and incentives, the way Skinner incented those white mice in his boxes.  Poster child: Jack Welch.

An example: the mortgage industry.  The purveyors of the competitive/process/metric paradigm saw mortgage as an industry that was regionally fragmented, structurally clumpy, high cost, stodgy, inefficient, illiquid, and highly subjective.

In 15 years, they transformed it.  The mortgage business became globally integrated, highly specialized (substituting markets for organizations via disintermediation), low-cost, nimble, cutting edge, efficient, liquid, and highly impersonal.  It became a market-driven, process-linked, globally efficient industry.  That’s all true.

It also became bereft of relationships; laden with perverse incentives; managed by serial transactors; stripped of any sense of responsibility; and governed solely by financial metrics.  In a business whose product already was money, the doubling-up emphasis on financial metrics obliterated any memory of other principles or values that might have once existed in the financial sector. 

The new mantra was IBGYBG. I’ll be gone, you’ll be gone; do the deal and let the next sucker clean it up.  The entire Meaning of Business became—to make more money than the other guys.  Period.

You work for your company–in theory, the shareholders.  Your company’s job is to win.  You win by beating others before they beat you.  Customers are walking wallets, sources of the poker chips you use to measure success.  Suppliers are to be played off against each other.  All parties are to be managed in clumps of processes, carrotted-and-sticked to behave in certain ways.  That, simply, is how it was supposed to work.  According to this mantra.

This ideology didn’t just happen.  It was four decades in the making. 

Bruce Henderson didn’t mean to do it—but he set the wheels in motion.  BCG, Hammer, Porter, and CSC-Index made it look enticing.  Economists and quant-wannabes from the HR, exec-comp and leadership world added their hops and spices to the brew.  Goldman Stanley and Morgan Sachs refined it; private equity and financial engineers distilled it; and Merrill Stearns, mortgage brokers and Joe the Plumber  got drunk on it.

Complicated?  Yes.  That’s where conspiracy theories come in; they let you simplify.  So pardon me if I just use the shorthand version: BCG caused the recession.