What Killed Monitor Group? - Forbes про сабж и стратконсалтинг в целом - СМИ о консалтинговых компаниях
Username:
Password:

Добро пожаловать на форум YupTalk.ru!
Обсуждаем международную карьеру, профессиональный рост, бизнес-образование,
транснациональные корпорации, стажировки, консалтинг, финансы, аудит, маркетинг и работу в целом.


О САЙТЕ | РЕКЛАМА | ПРАВИЛА | КОНТАКТЫ | RSS ПОДПИСКА | | | БЛОГ

Подписка на все новые сообщения по почте:
Страницы: 1
  Печать  
Автор Тема: What Killed Monitor Group? - Forbes про сабж и стратконсалтинг в целом  (Прочитано 23774 раз)
Cognoscenti
VIP
Ветеран
*

Карма: 210
Оффлайн Оффлайн

Сообщений: 626



« : 21 Ноябрь 2012, 22:38:10 »

What Killed Michael Porter's Monitor Group? The One Force That Really Matters

What killed the Monitor Group, the consulting firm co-founded by the legendary business guru, Michael Porter? In November 2012, Monitor was unable to pay its bills and was forced to file for bankruptcy protection. Why didn’t the highly paid consultants of Monitor use Porter’s famous five-force analysis to save themselves?

What went wrong?

Was Monitor’s demise something that happened unexpectedly like a bolt from the blue? Well, not exactly. The death spiral has been going on for some time. In 2008, Monitor’s consulting work slowed dramatically during the financial crisis. In 2009, the firm’s partners had to advance $4.5 million to the company and pass on $20 million in bonuses. Then Monitor borrowed a further $51 million from private equity firm, Caltius Capital Management. Beginning in September 2012, the company was unable to pay monthly rent on its Cambridge, Mass., headquarters. In November 2012, Monitor also missed an interest payment to Caltius, putting the notes in default and driving the firm into bankruptcy.

Was it negligence, like the cobbler who forgot to repair his own children’s shoes? Had Monitor tried to implement Porter’s strategy and executed it poorly? Or had Monitor implemented Porter’s strategy well but the strategy didn’t work? If not, why not?

Was it missteps, such as chasing consulting revenue from the likes of the Gaddafi regime in Libya? Or had the world changed and Monitor didn’t adjust? Or was it, as others suggested, that Monitor had priced itself out of the market? Or was Monitor’s bankruptcy, as some apologists claimed, merely a clever way of selling its assets to Deloitte?

Or was it, as Peter Gorski wrote, that “even a blindfolded chimpanzee throwing darts at the Five Porter Forces framework can select a business strategy that performs as well as that prescribed by Dr. Porter and other high-paid strategy consultants?” If so, are other strategy consulting firms also doomed?

A very strange tale

The answers to these intriguing questions are strange and troubling. We can find some of them in the work of consulting insider, Matthew Stewart, and his enlightening, but misleadingly-titled, book, The Management Myth (Norton, 2009).

In his book, Stewart tells how in 1969, when Michael Porter graduated from Harvard Business School and went across the river to get a PhD in Harvard’s Department of Economics, he learned that excess profits were real and persistent in some companies and industries, because of barriers to competition. To the public-spirited economists, the excess profits of these comfortable low-competition situations were a problem to be solved.

Porter saw that what was a problem for the economists was, from a certain business perspective, a solution to be enthusiastically pursued. It was even a silver bullet. An El Dorado of unending above-average profits? That was exactly what executives were looking for—a veritable shortcut to fat city!

Why go through the hassle of actually designing and making better products and services, and offering steadily more value to customers and society, when the firm could simply position its business so that structural barriers ensured endless above-average profits?

Why not call this trick “the discipline of strategy”? Why not announce that a company occupying a position within a sector that is well protected by structural barriers would have a “sustainable competitive advantage”?

Why not proclaim that finding these El Dorados of unending excess profits would follow, as day follows night, by having highly paid strategy analysts doing large amounts of rigorous analysis? Which CEO would not want to know how to reliably generate endless excess profits? Why not set up consulting a firm that could satisfy that want?

The Aristotle of business metaphysics

Thus it was that in March/April 1979, Michael Porter published his findings in Harvard Business Review in an article entitled “How Competitive Forces Shape Strategy” and followed it up the next year with a long and unreadable book. The writings started a revolution in the strategy field. Michael Porter became to the new discipline of strategy “what Aristotle was to metaphysics”.

Better still, the new-born discipline of strategy was able to present itself as “the discipline that synthesizes all of the other functional sub-disciplines of management into a meaningful whole. It defines the purpose of management and of management education.”

In 1983, Porter co-founded his consulting company, the Monitor Group, that over the years generated hundreds of millions of dollars in fees from corporate clients (as well as from clients in the nonprofit sector), and also providing rich livelihoods for other large consulting firms, like McKinsey, Bain and BCG.

“Among academics,” writes Joan Magretta in Understanding Michael Porter, “he is the most cited scholar in economics and business. At the same time, his ideas are the most widely used in practice by business and government leaders around the world. His frameworks have become the foundation of the strategy field.”

No basis in fact or logic

There was just one snag. What was the intellectual basis of this now vast enterprise of locating sustainable competitive advantage? As Stewart notes, it was “lacking any foundation in fact or logic.” Except where generated by government regulation, sustainable competitive advantage simply doesn’t exist.

Porter might have pursued sustainable business models. Or he might have pursued ways to achieve above-average profits. But sustainable above-average profits that can be deduced from the structure of the sector? Here we are in the realm of unicorns and phlogiston. Ironically, like the search for the Holy Grail, the fact that the goal is so mysterious and elusive ironically drove executives onward to continue the quest.

Hype, spin, impenetrable prose and abstruse mathematics, along with talk of “rigorous analysis”, “tough-minded decisions” and “hard choices” all combined to hide the fact that there was no evidence that sustainable competitive advantage could be created in advance by studying the structure of an industry.

Although Porter’s conceptual framework could help explain excess profits in retrospect, it was almost useless in predicting them in prospect. As Stewart points out, “The strategists’ theories are 100 percent accurate in hindsight. Yet, when casting their theories into the future, the strategists as a group perform abysmally. Although Porter himself wisely avoids forecasting, those who wish to avail themselves of his framework do not have the luxury of doing so. The point is not that the strategists lack clairvoyance; it’s that their theories aren’t really theories— they are ‘just-so’ stories whose only real contribution is to make sense of the past, not to predict the future.”

The goal of strategy is to avoid competition?

How did all this happen? Porter began his publishing career in his March-April 1979 Harvard Business Review article, “How Competitive Forces Shape Strategy”, with a very strange sentence: “The essence of strategy is coping with competition.” Ignoring Peter Drucker’s foundational insight of 1973 that the only valid purpose of a business is to create a customer, Porter focused strategy on how to protect businesses from other business rivals. The goal of strategy, business and business education was to find a safe haven for businesses from the destructive forces of competition.

By defining strategy as a matter of defeating the competition, Porter envisaged business as a zero-sum game. As he says in his 1979 HBR article, “The state of competition in an industry depends on five basic forces… The collective strength of these forces determines the ultimate profit potential of an industry.” For Porter, the ultimate profit potential of an industry is a finite fixed amount: the only question is who is going to get which share of it.

Sound business is however unlike warfare or sports in that one company’s success does not require its rivals to fail. Unlike competition in sports, every company can choose to invent its own game. As Joan Magretta points out, a better analogy than war or sports is the performing arts. There can be many good singers or actors—each outstanding and successful in a distinctive way. Each finds and creates an audience. The more good performers there are, the more audiences grow and the arts flourish.

What’s gone wrong here was Porter’s initial thought. The purpose of strategy—or business or business education—is not about coping with competition–i.e. a contest in which a winner is selected from among rivals. The purpose is business is to add value for customers and ultimately society. There is a straight line from this conceptual error at the outset of Porter’s writing to the debacle of Monitor’s bankruptcy. Monitor failed to add value to customers. Eventually customers realized this and stopped paying Monitor for its services. Ergo Monitor went bankrupt.

Making profits without deserving them

In the theoretical landscape that Porter invented, all strategy worthy of the name involves avoiding competition and seeking out above-average profits protected by structural barriers. Strategy is all about figuring out how to secure excess profits without having to make a better product or deliver a better service.

It is a way of making more money than the merits of the product or service would suggest, or what those plain folks uncharitable to the ways of 20th Century business might see as something akin to cheating. However for several decades, many companies were ready to set aside ethical or social concerns and pay large consulting fees trying to find the safe and highly profitable havens that Porter’s theory promised.

Although Michael Porter, the human being, appears to be a well-meaning man of high personal integrity, his framework for the discipline of strategy isn’t just an epistemological black hole; in its essence, it’s antisocial, because it preserves excess profits, and it’s bad for business, because it doesn’t work. It accomplishes the unlikely feat of goading business leaders to do wrong both to their shareholders and to their fellow human beings.

It is only recently that Porter’s writing has begun to include any awareness that creating safe havens for businesses with unending above average profits protected by structural barriers is not good for customers and society, with his advocacy of shared value. This recognition has come, however, without yet jettisoning any of the toxic baggage of sustainable competitive advantage.

No competitive advantage is sustainable

The disastrous consequences of thinking that the purpose of strategy, business and business education is to defeat one’s business rivals rather than add value to customers has of course been aggravated by the epic shift in the power of marketplace from the seller to the buyer. In the studies of the oligopolistic firms of the 1950s on which Porter founded his theory, it appeared that structural barriers to competition were widespread, impermeable and more or less permanent.

Over the following half century, the winds of globalization and the Internet blew away most of these barriers, leaving the customers in charge of the marketplace. Except for a few areas, like health and defense where government regulation offers some protection, there are no longer any safe havens for business. National barriers collapsed. Knowledge became a commodity. New technology fueled spectacular innovation. Entry into existing markets was alarmingly easy. New products and new entrants abruptly redefined industries.

The “profit potential of an industry” turned out to be, not a fixed quantity with the only question of determining who would get which share, but rather a highly elastic concept, expanding dramatically at one moment or collapsing abruptly at another, with competitors and innovations coming out of nowhere. As Clayton Christensen demonstrated in industry after industry, disruptive innovation destroyed company after company that believed in its own sustainable competitive advantage.

The only safe place

The business reality of today is that the only safe place against the raging innovation is to join it. Instead of seeing business—and strategy and business education—as a matter of figuring out how to defeat one’s known rivals and protect oneself against competition through structural barriers, if a business is to survive, it must aim to add value to customers through continuous innovation and finding new ways of delighting its customers. Experimentation and innovation become an integral part of everything the organization does.

Firms like Apple [AAPL], Amazon [AMZN], Salesforce [CRM], Costco [COST], Whole Foods [WFM] and Zara [BMAD:ITX] are examples of prominent firms pursuing this approach. They have shifted the concept of the bottom line and the very purpose of the firm so that the whole organization focuses on delivering steadily more value to customers through innovation. Thus experimentation and innovation become an integral part of everything the company does. Companies with this mental model have shown a consistent ability to innovate and to disrupt their own businesses with innovation.

Thus what is striking about continuous innovation is that the approach is not only more innovative: it tends to make more money. The latter point is important to keep in mind. For all the hype about innovation, unless it ends up making more money for the firm, ultimately it isn’t likely to flourish. Making money isn’t the goal, but the result has to be there for sustainability.

Is continuous innovation sustainable? Firms like those I mentioned have been at it for one or more decades with extraordinary results. What’s interesting is that they are consistently disrupting others, rather than being disrupted themselves. Will they survive for 50 or 100 years? Time will tell. What we do see is that they are doing a lot better than firms pursuing shareholder value or focusing merely on defeating rivals.

Monitor had no place in the emerging world

In this world, Monitor’s value proposition of a supposed sustainable competitive advantage achieved by studying the numbers and the existing structure of the industry became increasingly implausible and irrelevant. Its consultants were not people with deep experience in understanding what customers might want or what is involved in actually making things or delivering services in particular industries or how to innovate and create new value.

They were part-time academics who promised to find business solutions just from studying the numbers. They had no idea how to build cars or make mobile phones or generate great software. They were numbers men looking for financial solutions to problems that required real-world answers.

The important question is not: why did Monitor go bankrupt? Rather, it is: how were they able to keep going with such an illusory product for so long? The answer is that Porter’s claim of sustainable competitive advantage, based on industry structure and the numbers, had massive psychological attractions for top management.

The strategist CEO as a kind of warrior god

Porter’s theory thus played to the image of the CEO as a kind of superior being. As Stewart notes, “For all the strategy pioneers, strategy achieves its most perfect embodiment in the person at the top of management: the CEO. Embedded in strategic planning are the assumptions, first, that strategy is a decision-making sport involving the selection of markets and products; second, that the decisions are responsible for all of the value creation of a firm (or at least the “excess profits,” in Porter’s model); and, third, that the decider is the CEO. Strategy, says Porter, speaking for all the strategists, is thus ‘the ultimate act of choice.’ ‘The chief strategist of an organization has to be the leader— the CEO.”

Strategy leads to “the division of the world of management into two classes: “top management” and “middle management.” Top management takes responsibility for deciding on the mix of businesses a corporation ought to pursue and for judging the performance of business unit managers. Middle management is merely responsible for the execution of activities within specific lines of business.

The concept of strategy as it emerges defines the function of top management and distinguishes it from that of its social inferiors. That which is done at the top of an organizational structure is strategic management. Everything else is the menial task of operational management.

Two classes of management

Practitioners of strategy insist on this distinction between strategic management and lower-order operational management. Strategic (i.e. top) management is a complex, reflective, and cerebral activity that involves interpreting multidimensional matrices. Operational management, by contrast, requires merely the mechanical replication of market practices in order to match market returns. It is a form of action, suitable for capable but perhaps less intelligent types.

This picture of CEO-superdeciders helps justify their huge compensation and the congratulatory press coverage, and yet again, it also has little foundation in fact or logic. The strategy business thus lasted so long in part because it supports and advances the pretensions of the C-suite.

Porter’s strategy theory is to CEOs what ancient religions were to tribal chieftains. The ceremonies are ultimately about the divine right of the rulers to rule—a kind of covert form of political theory. Stewart cites Brian Quinn that it is “like a ritual rain dance. It has no effect on the weather that follows, but those who engage in it think that it does.”

The future of strategy consulting

Does strategy consulting have a future? When rightly conceived as the art of thinking through how companies can add value to customers–and ultimately society–through continuous innovation, strategy consulting has a bright future. The market is vast because most large firms are still 20th Century hierarchical bureaucracies that are focused on “the dumbest idea in the world”: shareholder value. They are very weak at innovation.

Consultancies that can guide large firms to move into the world of continuous innovation in the 21st Century have a bright future. To succeed in this field, however, consultants need to know something both about innovation and about the sectors in which they operate and the customers who populate them. Merely rejiggering the financials or flattering the CEO as the master strategist is not going to get the job done. Managers and consultants are going to have to get their hands dirty understanding what happens on the front lines where work gets done and where customers experience the firm’s products and services. To prosper, everyone has to become both more creative and more down-to-earth.

What has no future is strategy conceived as defeating rivals by finding a sustainable comparative advantage simply through studying the structure of the industry and juggling the numbers.

Since Monitor had no other arrow in its strategy quiver, it was doomed from the outset. Its embarrassing debacle marked the beginning of the end of the era of business metaphysics and the exposure of the most over-valued idea on the planet: sustainable competitive advantage.

Monitor was killed by the dominant force: the customer

Eventually even attractive illusions come to an end: people see through them. Ceremonial rain dances come to be viewed for what they are. The financial crisis of 2008 was a wake-up call that reminded even entrenched firms how vulnerable they were. Today, large firms have little interest in paying large fees to strategists to find sustainable competitive advantage just from studying the numbers.

Monitor eventually learned the hardest lesson of all: strategy, business and business education are not about pursuing the chimera of sustainable competitive advantage.

Monitor wasn’t killed by any of the five forces of competitive rivalry. Ultimately what killed Monitor was the fact that its customers were no longer willing to buy what Monitor was selling. Monitor was crushed by the single dominant force in today’s marketplace: the customer.

http://www.forbes.com/sites/stevedenning/2012/11/20/what-killed-michael-porters-monitor-group-the-one-force-that-really-matters/
Записан
greymn
VIP
Старожил
*

Карма: 56
Оффлайн Оффлайн

Сообщений: 446


« Ответ #1 : 22 Ноябрь 2012, 16:22:17 »

Какая-то феерическая отрыжка. Автор как бы между делом низвергнул пяток established теорий.
Записан
uber
Старожил
****

Карма: 0
Оффлайн Оффлайн

Сообщений: 281


« Ответ #2 : 22 Ноябрь 2012, 17:44:33 »

Триндеть - не мешки воротить. Странный надменный фон с высмеиванием со-основателя Портера, сравнение и поиск логики удивляют примитивностью и сопоставимы с уровнем российских журналистов.

What Killed Michael Porter's Monitor Group? The One Force That Really Matters

Записан
Raccoon
Глобальный модератор
Старожил
*****

Карма: 91
Оффлайн Оффлайн

Пол: Мужской
Сообщений: 446



« Ответ #3 : 22 Ноябрь 2012, 19:36:22 »

Uber

просьба не цитировать такие огромные сообщения целиком.


В статье интересное высказывание

... most large firms are still 20th Century hierarchical bureaucracies that are focused on “the dumbest idea in the world”: shareholder value. They are very weak at innovation.

Согласен я, что они инертны, но почему the dumbest idea,  ведь если не она, то ради чего?
Записан

greymn
VIP
Старожил
*

Карма: 56
Оффлайн Оффлайн

Сообщений: 446


« Ответ #4 : 22 Ноябрь 2012, 23:48:42 »

Uber

просьба не цитировать такие огромные сообщения целиком.


В статье интересное высказывание

... most large firms are still 20th Century hierarchical bureaucracies that are focused on “the dumbest idea in the world”: shareholder value. They are very weak at innovation.

Согласен я, что они инертны, но почему the dumbest idea, если не она, то ради чего?
http://www.economist.com/news/business/21567062-pursuit-shareholder-value-attracting-criticismnot-all-it-foolish-taking-long
Вот буквально свежайшая статья в экономисте об этом. Я тоже удивлен.
Записан
Raccoon
Глобальный модератор
Старожил
*****

Карма: 91
Оффлайн Оффлайн

Пол: Мужской
Сообщений: 446



« Ответ #5 : 23 Ноябрь 2012, 09:45:54 »

Хорошая статья. Но узкое место всё же есть:

"But what is long-term value if not short-term results piled upon each other?"

И я с этим не согласен. Можно возразить, что он имел ввиду "Think globally, succeed locally". Но нет - это две большие разницы.
Записан

Cognoscenti
VIP
Ветеран
*

Карма: 210
Оффлайн Оффлайн

Сообщений: 626



« Ответ #6 : 23 Ноябрь 2012, 22:10:38 »

В статье интересное высказывание

... most large firms are still 20th Century hierarchical bureaucracies that are focused on “the dumbest idea in the world”: shareholder value. They are very weak at innovation.

Согласен я, что они инертны, но почему the dumbest idea,  ведь если не она, то ради чего?

Я сам удивился. С трудом перечитав статью, я даже пожалел, что разместил этот крео.
Записан
walkman_w902
VIP
Постоялец
*

Карма: 73
Оффлайн Оффлайн

Пол: Мужской
Сообщений: 233



« Ответ #7 : 23 Ноябрь 2012, 22:58:10 »

Прочитав статью, на ум приходит пословица про мёртвого льва и осла. Ещё чем-то напомнило историю LTCM. Воистину бывают ситуации, когда гении терпят поражение, но их заслуг это нисколько не умаляет.
Записан

The only easy day was yesterday. (c) Navy SEALs Motto
Inf1del
VIP
Постоялец
*

Карма: 13
Оффлайн Оффлайн

Пол: Мужской
Сообщений: 183



« Ответ #8 : 23 Ноябрь 2012, 23:53:25 »

Я сам удивился. С трудом перечитав статью, я даже пожалел, что разместил этот крео.
зато поспорили и пришли к правильному выводу

In the studies of the oligopolistic firms of the 1950s on which Porter founded his theory, it appeared that structural barriers to competition were widespread, impermeable and more or less permanent.
Надеюсь консалтинговые фирмы давно к этому пришли?
Записан

You Only Live Online
Tyler Derden
VIP
Старожил
*

Карма: 77
Оффлайн Оффлайн

Сообщений: 316


« Ответ #9 : 23 Январь 2013, 14:28:50 »

Victor Cheng про субж:


If you've been following the news over the last few weeks, you may have heard that Monitor Group, the highly respected consulting firm, declared bankruptcy and is in the process of being acquired by Deloitte.

The question everybody has been asking is, what the heck happened?

To many Monitor was considered the #4 firm behind McKinsey, Bain and BCG. In my year, I knew people who declined MBB offers to go work at Monitor - yes Monitor was respected THAT much.

At McKinsey, I had colleagues who read everything Monitor co-founder Michael Porter ever wrote. The word brilliant came up more than once.

So what happened?

To answer that question, I'll share with you my perspective on Monitor's fall, what we can all learn from it, and what it means for you.

Let's start with the basics of why a firm, any firm, goes bankrupt.

A firm goes bankrupt when it no longer has enough cash to pay its bills.

This is usually correlated with Revenues < Costs, but not always. I'll elaborate on why in a minute.

Traditionally a firm will fail for one of two reasons:

1) Not enough sales (or profit margin) 2) Too much sales

The first reason is more intuitive. When your revenues are less than costs, at some point you can't pay your bills.

The second reason is a little counter-intuitive, so let me explain that one in more detail.

First, it's important to realize that in my writings to you, I spend most of my talking about strategy.

It's important to keep in mind that strategy differs significantly from how one executes or operationally implements that strategy.

In strategy, we focus on profits... where revenues exceeds costs.

In operations, we (relatively speaking) focus less on profits, and focus much more on cash inflow vs cash outflow.

Cash inflow = deposits to the bank account Cash outflow = withdrawals from the bank account

In a case interview, it's assumed that when a company receives an order from a customer (which causes its revenues to increase), the customer pays the company immediately in full for the order.

Similarly, in a case interview, when a company signs a contract obligating them to some new expense from a supplier, it's generally assumed that the supplier gets paid immediately.

In these situations, to over simplify a little:

Revenues = Cash Inflow Costs = Cash Outflow

(Note: For the accounting oriented, I'm excluding some non-cash costs like amortization, depreciation, etc..)

However, when you're running a company there are material differences between revenues and cash inflow, and differences between costs and cash outflow.

These differences are based on the TIMING of when the cash related to a particular order is actual exchanged between customer and company.

The same is true on the cost side. A cost is incurred when you sign a deal with a vendor, but cash outflow is only triggered on the day you actually PAY the bill.

As a general rule, it is advantageous for a company to get paid by customers immediately, and to negotiate to deliberately pay your bills 30, 60 or 90+ days after a supplier provides their product or service. Under these ideal circumstances, a company has a "positive cash flow"
cycle.

Most Fortune 500 companies have the negotiating power to have a positive cash flow cycle.

For example, if you want to sell your products in Wal-mart, they will place a $10 million order today, but pay you for that order in 4 - 6 months. (Keep in mind this is negotiated, and any vendors that say no don't get the order).

Conversely, if you get paid for your products and services months after the fact, but you must pay your employees and suppliers immediately, this is a negative cash flow cycle.

A small business that's trying to sell to a Fortune 500 customer, will often have a negative cash flow cycle.

They'll land the $10 million order from Wal-Mart, but have to find some way to pay all their expenses until Wal-Mart pays their bills several months later.

As a result, it is possible to go out of business by having TOO MUCH revenue (and not enough cash to pay all the expenses during the period between when the order is received and the bill is actually paid by the customer).

My consulting practice covers both strategy and operations.
With my clients, I am ALWAYS talking to them about cash flow. I am constantly reminding my clients that a strategy or an idea isn't fully implemented, until the "cash is in the bank".

It's very easy for a CEO to approve an idea, but sometimes neglect to verify if that idea actually produced cash 6 or
12 months later.

It's very important to verify that cash actually got to the bank, because quite often the cash you thought a strategy was supposed to generate, doesn't always materialize.

This happens for countless reasons -- you had flawed assumptions in your original analysis, your analysis was correct but there was some hidden problem in execution, you're wasting money somewhere in the business without realizing it.

Welcome to the headache known as operating a business.

In my own business, the first thing I do each morning is to check my bank account balance to make sure the cash level is what I expect it to be. When operating a business, cash is your life blood.

This is analogous to what a doctor does in the intensive care ward of a hospital. When a doctor enters the room, the first thing she does is ti check your vital signs (pulse, blood pressure, something called blood oxygenation level -- how much oxygen is actually getting into your blood).

Having spend hundreds of hours in intensive care as a family member, I had many opportunities to observe what the doctors do. The reason they check for things like pulse and blood pressure is very simple. They do so to see if you're dead, alive or somewhere in between (as is often the case in intensive care).

Yes, it is that simple -- after all most of the patients are not awake and well, it's kind of heard to tell if someone is alive, dead, or just sleeping.

It is the same with cash. As a smart business operator, you watch cash to verify your business is not dead. Hey, it's a pretty useful discipline.

As my mother taught me when I was 10 years old, "Victor if you have enough cash, you will NEVER go out of business." (I have an unusual mother.)

When I was 11 years old, I used to wear a bright yellow T-shirt around school that said, "Happiness is Positive Cash Flow." (My teachers always thought I was a weird.)

In hindsight, I realized:

1) LOL... I did NOT have a normal childhood.

2) Positive cash flow doesn't buy you happiness, but negative cash flow definitely gets you misery.

As it relates to Monitor, they most definitely did NOT have positive cash flow, and they were most certainly miserable about it.

So what happened to Monitor's cash? And why did Monitor fall, when other firms did not?

While there are many reasons, I'd speculate their #1 underlying "root cause" issue was likely...

DENIAL

Monitor underestimated the severity of the problem they had, they did too little to address the problem (i.e., magnitude of solution = magnitude of PERCEIVED problem... but....
magnitude of solution < magnitude of ACTUAL problem), and acted too late.

What likely happened was Monitor was negatively impacted by the global recession of 2008. However, many other firms were as well and they survived.

However, Monitor also suffered a scandalous blow to their reputation when the media discovered the Libyan Dictator Moammar Gadhafi was a client that hired Monitor to improve his image in the Western media.

In particular, Monitor worked on Gadhafi using means of questionable ethics. In addition, as part of that engagement, Monitor helped one of his sons to write a dissertation for his PhD from the London School of Economics.

(There's a lesson on protecting one's reputation that I'll circle back to in a few minutes.)

So between the recession and reputation damage, that almost certainly caused a structural decline in Monitor's revenues.

At the time, in 2008, the best I can tell Monitor had around
1,500 consultants in 27 offices. While they reduced the number of employees by about 20% and closed a few small offices, it clearly wasn't enough.

They should have cut much more deeply in order to survive.
They didn't and 4 years later in 2012, they ran out of the cash needed to support an unprofitable business.

Remember even with a negative cash flow cycle, if you have enough cash in the bank you can survive long enough to hopefully improve the cash flow cycle. Monitor ran out of time and money.

If you've been following my work for any period of time, you'll recall how much I emphasize (and continue to use to this day) my profitability framework.

I've recommend that you use it, I use with my clients, and I use it for my own business because well, profitability is like really, really, really important.

That's an understatement!

Monitor started becoming unprofitable in 2008 due to both the recession and the news around Gadhafi. They cut expenses by 20% to be at least break even in profitability.

Then between 2008 - 2011, sales continued to decline and rather than cut expenses further (and risk signaling to the world that they were having problems), Monitor likely decided to continue to run the firm at a financial loss in hopes that either:

1) the economy and therefore sales would improve soon, or 2) enough money could be borrowed from outside investors to fund the losses until sales could recover

They miscalculated on both fronts -- the revenues did not recover on their own and despite initial success in borrowing around $50 million from an outside investor, they were unable to get a follow on investment and ran out of cash.

Monitor's bankruptcy is not only a major failure, but it's a particularly humiliating failure. This is precisely the kind of problem that clients hire Monitor to solve of them.

It's like finding out your doctor who has been telling you to stop eating so much sugar, has diabetes.

It's embarrassing to say the least.

I mean at this point would you ever hire Monitor for a profit improvement project?

THREE KEY TAKEAWAYS

In look at the Monitor situation, there are... (wait for it...) THREE key takeaways:

1) ALWAYS Protect Your Reputation

As Warren Buffet says, it takes a lifetime to earn a good reputation. It takes a few days to lose it all.

This is worth remembering in your career... especially a career in consulting where the "product" basically is your personal reputation or your firm's reputation.

Reputation comes in two flavors:

a) integrity of words and actions, and b) reputation by association

The first is about actually believe in what you say and to act in a reliable way towards others.

For example, when I recommend a particular skill, process or behavior in a case (or with a client) and you follow my advice, if it worked out well for you, might reputation in your eyes goes up. If I told you something that did not work or was flat out incorrect, then my reputation goes down.

Thankfully my reputation over the years has gone up on more occasions than it has gone down. It takes a lot of work and care to make that happen. It does not happen by itself.

Last year, my writings and influence were read by CIB and working consultants in 212 countries -- which is amazing to me. Anecdotally, I'm told that upwards of 50% of the new consultants at MBB are followers of my work in countries ranging from Australia, Nigeria, Malaysia, South Africa, and of course the US, and EU.

How did my reputation grow to seemingly span the world?
(Which again continues to amaze me).

The short answer:

One sentence at a time.

(In your case it might be one meeting at a time, one presentation at a time, one analysis at a time, one day at a time... it's daily consistency on the micro, that leads to the macro reputation.)

The second form of reputation is reputation by association.

You are judged by the company you keep... in other words you're reputation is assumed to be of the same as the reputation of the people around you.

Conclusion: Be CAREFUL who you associate with.

Gadhafi as a client? Maybe not the best choice.

Helping a client's son cheat on his dissertation at the London School of Economics? Perhaps one should think twice on that one.

Secretly hiring prominent academics to write favorable opinion pieces on a Libyan Dictator?

Maybe, just maybe, not a good idea.

Do you really want to be know as the "go to" firm that specializes in cheating and manipulation? The preferred consulting firm of dictators everywhere? Is that REALLY the reputation you want for your firm?

As one Monitor consultant said after the fact...and I paraphrase "we screwed up royally."

Was Monitor really that desperate for revenue?

Building your reputation and reputation for integrity is not without costs. The real acid test is are you personally willing to turn down income for the sake of reputation or integrity.

I routinely turn down clients when it's not a good fit for them or for me.

I actively stay away from people I do not want to be associated with.

In short, I'm very conscious of the choices I make. You should be too.

Monitor wasn't.

2) PRIDE and EGO are the most expensive costs in a business

I have been saying for years that the largest expenses I "see" on a company's financial statement are the pride and ego of its leaders.

Of course pride and ego are not actual expenses of the company, but the expenses incurred in protecting one's pride and ego can in my experience be ENORMOUS.

What likely happened with Monitor is they continued to shrink even after their initial staff reductions. Rather than continue to cut expenses to be in alignment with the new market demand, they consciously allowed expenses to be higher than revenues.

This is very RISKY.

Why would a bunch of highly intelligent business leaders rationally run a business unprofitably?

Well rational leaders wouldn't (or at least not for very long).

But leaders who had their pride and ego tied up in the business, and couldn't bear the thought of having the world think less of them might.

They decided that rather than admit a moderate defeat, they would rather be in denial, pretend nothing was wrong until they accumulated a massive defeat in the form of a bankruptcy failure.

To be fair, there is another perspective more flattering (or less unflattering) portrayal of what went wrong.

Lets say that sales dropped off, and Monitor continually slashed variable costs (i.e., salaries) to keep pace. I didn't see any mention of this in the news other than the original 20% cut in 2008, but it's possible it happened quietly.

At that point, perhaps their fixed costs such as leases and loan payments on buildings were so high and nearly impossible to reduce partially, without eliminating entirely (e.g., maybe they ideally tried to shrink the real estate size of each office by 50% but perhaps nobody else wanted it, they only wanted 100% of it).

While this is possible, I'm a bit skeptical this is what happened as they had nearly 4 years of time to restructure their costs to be profitable. That's typically more than enough time to shed costs -- provided you intended to do so aggressively.

As an example, when Steve Jobs re-joined Apple as CEO, he took over Apple when the company had roughly 90 days of cash left in the bank. Only 90 days before the company was bankrupt. Jobs stopped the Apple from "bleeding" cash and did it in 90 days.

In comparison, Monitor had closer to 1,400 days to do the same, but couldn't.

Monitor just did not EXECUTE.

Slashing costs is not difficult. It is, however, extremely unpleasant.

Medically speaking, cutting off a patient's leg to save their life is not mechanically difficult, nor logically difficult. Alive with one leg is logically better than dead with two legs.

This makes completely rational sense... unless you're person with the axe and it's your right leg were talking about. Can you really lift the axe up and swing it down?

I know it's a bit of a gruesome visual, but this is basically (sort of) the sort of "tough decision" that both Steve Jobs and Monitor faced. Jobs was willing to swing the axe. Monitor opted for using nail clippers instead -- not enough in the end.

If you look at where Apple and Monitor are today, I think the results of those pivotal decisions speak for themselves.

Which leads me to my third and final lesson:

3) Execution is HARDER than it looks

Amongst MBB-caliber consultants, especially the younger ones, there's an enormous bias that:

Strategy = Hard Execution = Easy

The bias is RAMPANT inside these firms. Here's how it plays out.

(And I'm going to apologize in advanced to any Harvard folks reading this).

Lets say you have a hot shot Harvard undergrad, who also has a Harvard PhD working at MBB.

In one of his early engagements, he discovers the client has been focusing on a segment of the market that's shrinking in size where profit margins have eroded.

The consultant recommends the client switch market segments to a different segment -- one that's growing and much more profitable.

After the final presentation, it's very easy for that consultant to think:

Geez... it was like so OBVIOUS the client was focusing on the wrong segment. I can't believe they didn't do this on their own. Clearly, I / we are smarter than they are, and that's why we earn the big fees.

Now nobody in consulting that I know would say that out loud, but I know a lot of people who quietly think this to themselves.

In fact, at some level, I used to think this way... that is until I ended up going to industry, helping to run public companies, and becoming a business operator of my own.

Lets say I have WAY more empathy for my previous clients than I did at the time.

Execution is HARD.

Let me give you an example.

Since were on the topic of Apple (which I am a fan of), let me give you an example.

Apple has one glaring vulnerability. It has extraordinarily high profit margins. You could slash Apple's profit margins by 50% and it would still be an incredibly profitable company.

The entire history of technology and Silicon Valley is one of initially inferior technology that's dramatically cheaper, eroding the market position of a superior high priced technology (e.g., PC's vs mainframe computer).

To oversimplify, one strategy is to compete against Apple at the low end of the market by selling products at 30% of the the price that are 70% as good.

That's "obvious" right?

Now, to actually do that is HARD.

Apple has decade long exclusive contracts with ALL the major component suppliers in the world. They get preferred pricing and they get supplied first before you do. You have to replicate that somehow.

Apple has an enormous head start on innovation and design.
You'd have to come close to matching that.

Apple has an enormous portfolio of patents.

Apple has a ton of cash.

Apple has an incredible brand following.

Apple has... well a lot going for it.

To compete against Apple requires billions of dollars, incredible levels of talent, enormous resources in 100 countries around the world to all execute simultaneously and then maybe, maybe it might work... barely.

Hardly easy.

As a consultant, I thought strategy was "hard" and operations "easy".

Today, having been (and continuing to be) both strategist and operator, my point of view has changed completely.

Strategy is "easy" and operations is "hard".

At this point in my career, I can take pretty much any business and within an hour or two find the core strategic issue and often figure out how to fix it. Basically, my initial client meetings are really just what you and I would call a case interview. The difference is my meetings are usually over the phone or over lunch.

Now, it might take that client working 12 hour work days, 6 days a week, and getting THOUSANDS of employees to change what they do every day... and to nudge, push, fight, and battle every work day for 10 YEARS to execute what I sketched out on the back of a napkin over lunch.

If you want to know WHY those in industry sometimes dislike and criticize consultants? It's because many of them completely fail to grasp the last 3 paragraphs.

And you know what? Many of those criticisms are warranted.

Don't be one of THOSE consultants where the criticism is warranted.

Execution is hard. Never forget that.

And in case you ever do, just look at Monitor.

They failed to execute, and it cost them dearly.
Записан
RomGo
Глобальный модератор
Старожил
*****

Карма: 95
Оффлайн Оффлайн

Сообщений: 296


« Ответ #10 : 23 Январь 2013, 23:10:32 »

Tyler Derden, спасибо! Только давайте приучаться давать ссылку на источник.

По посту: мне вот интересно. Виктор пишет:

"Monitor started becoming unprofitable in 2008 due to both the recession and the news around Gadhafi."

Хотя McKinsey пострадал еще больше: рецессия и скандал с их СЕО: http://rt.com/business/news/rajat-gupta-insider-goldman-187/
Но McKinsey жив. Или может еще рано судить? :)))
Записан
Tyler Derden
VIP
Старожил
*

Карма: 77
Оффлайн Оффлайн

Сообщений: 316


« Ответ #11 : 23 Январь 2013, 23:27:30 »

Tyler Derden, спасибо! Только давайте приучаться давать ссылку на источник.

Done)

McKinsey вряд ли грозит что-нибудь в текущем десятилетии
Записан



Страницы: 1
  Печать  
 
Обычная тема
Популярная тема (более 75 ответов)
Очень популярная тема (более 100 ответов)
Заблокированная тема
Прикрепленная тема
Голосование