Walter Kiechel III: An interview by Bob Morris

Posted on: March 9th, 2011 by bobmorris

Walter Kiechel III

Kiechel is author of The Lords of Strategy. The book reflects much of what he has learned in three decades of reporting and writing on business, including over 100 interviews—a few stretching over days—for this work alone. In recent years he combined research on The Lords with occasional part-time jaunts as an editor at large for Harvard Business Publishing, helping the company in its perpetual quest for new ideas, authors, and business opportunities. Until January, 2003, Kiechel served as editorial director of Harvard Business Publishing and senior vice president in charge of its publishing division, with responsibility for the Harvard Business Review; HBS Press, the company’s book-publishing arm; the newsletter unit (which he helped start in 1996) as well as HBP’s video, reprints, and conference businesses. From early 1997 until his appointment as editorial director in March, 1998, he was publisher of HBR.

Kiechel spent most of his early career at Fortune magazine, where generally he had a wonderful time. After beginning at the magazine as a reporter in 1977, he rose to become its managing editor, the top editorial position, in 1994. As assistant managing editor (1988), executive editor (1992), and finally M.E., he crafted a strategy for the magazine as a journal of “ideas, strategies, and solutions for decision makers.” Through most of the 1980s, Kiechel was editor in charge of Fortune‘s coverage of management. Now and then he’d take a break to write cover stories including “Corporate Strategy for the 1990s” (1988), “The Workaholic Generation” (1989), and “How We Will Work In the Year 2000” (1993). For 12 years he also wrote a regular column, “Office Hours,” on managerial technique, psychology, and sociology. In 1988, a collection of these pieces was published by Little Brown as a book titled Office Hours: A Guide to the Managerial Life. He has done daily broadcasts on “The New Economy” for the CBS Radio Network and hosted the not-much-lamented Fortune Week television program on CNBC.

Kiechel received JD and MBA degrees from Harvard, and is a member of the New York bar. He got his undergraduate education at Harvard as well, where he was awarded an AB degree with honors and elected to Phi Beta Kappa. From 1968 to 1973, he served as an officer in the U.S. Navy, spending most of the time on sea duty aboard destroyers, an adventure he still relishes.

Morris: Before discussing The Lords of Strategy, a few general questions. First, I am curious to know what you consider to be the most significant changes, during the last decade, in business education at institutions such as HBS, Kellogg, Wharton, Ross, and Haas.

Kiechel: The most important change, and it’s been going on for at least three decades, is the increasing “professionalization,” if that’s a word, of the faculty. By professionalization I mean the tendency of faculty members to have Ph.D.’s in their academic specialties, and for these specialties to be ever more narrowly defined. The higher-rated schools may have chief executives in residence or retired execs on three-year teaching fellowships, but the days when most faculty members had considerable prior experience as businessmen or women—those days are mostly over.

This has made for faculty members that have a lot of intellectual candlepower, often to the point of being able to command the respect of professors of economics or psychology elsewhere in their universities. It’s not as clear that the new-style faculty are as in touch with people and companies out there actually doing business. One thing I heard in the reporting for my book, from practitioners, consultants, and academics alike, was that practitioners were finding less and less useful what the business schools were doing by way of cutting-edge thinking of strategy.

At Harvard Business Publishing, at least when I was there through about 2002, we heard from junior faculty at Harvard Business School that their faculty mentors were discouraging them from publishing in Harvard Business Review, which is aimed at practitioners, until they had achieved tenure. Before then it was more important for them to publish in scholarly journals—The North Frisian Journal of Marketing Stochastics, to take a completely made-up example. How many marketing executives do you suspect read the North Frisian Journal.

Morris: In your opinion, what is the one area of business education at these and other institutions in which there remains the greatest need for improvement? Why?

Kiechel: The business schools could do a better job teaching face-to-face management, the actual work of organizing and helping along the efforts of others in the organization. The more quantitative disciplines—finance, even strategy—have gotten more attention, often more research dollars. Areas like organizational science or, even mushier, leadership have had more trouble settling on what it’s important to teach, and how. It’s rather like strategy itself, which as I argue in the book, has had trouble through most of its history figuring out how to incorporate people, their motivation and ability, into its calculations.

Morris: In an issue of Fortune magazine (March 22, 2010), there is an article in which Brian O’Keefe examines the ferocious competition to hire military officers whom he characterizes as “a new elite generation of business leaders.” As someone who once served on active duty as an officer in the U.S. Navy, how do you explain why companies such as Walmart*, PepsiCo, and GE are so eager to hire these men and women?

Kiechel: Companies are always looking for screening devices to use in making their selection processes more efficient—“Does Candidate X have an MBA? An accounting degree?” Service in the military is obviously one such screen.

But I think the reasons outfits like PepsiCo and GE have adopted this particular screen go deeper than that. The literature on leadership is all over the map. You can read the entirety of Bass and Stogdill’s Handbook of Leadership, which covers most of the research on the subject since the 19th century, and come away thinking that nobody in the field agrees on anything. But one practical point many experts will attest to is that if you want to develop someone as a leader, give them lots of responsibility early in their lives and careers. The military does that. I can remember being officer of the deck on a destroyer, on watch and in charge at two in the morning as we plowed through the Mediterranean while 300 shipmates slept below decks. I was 25 at the time. I don’t know how much of a leader I ever became, but the experience certainly brought home to me a sense of responsibility for others.

Morris: Now please shift your attention to The Lords of Strategy. For those who have not as yet read it, what are the “three common beliefs” that must be discarded in order to understand what you characterize as “the strategy revolution”? Why discard each of them?

Kiechel: First, that ideas aren’t important in business. Okay, people say, maybe an idea for a new product, but the rest is all execution, making it happen. Not so. As the strategy revolution demonstrated, ideas can be the key tools for making your business competitive.

Second, that companies have always had strategies, dating back at least to likes of Henry Ford or Andrew Carnegie, maybe to the contractors who built the Pyramids. As it turns out, it was only in the 1960s and 1970s that a new breed of “business intellectuals” began to develop the intellectual framework that allowed companies to look at the three “C’s” of any good strategy—namely their costs, customers, and competitors—in an integrated way.

Third, that management consultants are mostly useless parasites. Up until about 1980 it was consultants more than anyone else who came up with the critical concepts behind strategy. The history of strategy suggests there are lots of things consultants can do for a company that the company can’t typically do for itself.

Morris: What is the “comprehensive paradigm” to which you refer in Chapter 1?

Kiechel: It’s strategy, a unifying definition of what does your company does now and what you want it to do—built on a framework that knits together how you think about your costs, the customers you want to serve, and who your competitors are.

Morris: You identify and discuss “significant jolts” that you characterize as “the Four Horsemen of the Corporate Apocalypse.” What are they and which “jolt” has had the most disruptive impact?

Kiechel: The first is de-regulation. We forget now but up until the 1980s there were so many industries in which the competitiveness of the players was severely restricted by regulation—airlines, telecommunications, and banking, just to name three. The second was the rise of new technologies—computers, the Internet—that totally transformed how many companies conducted their business. The third was the development of a relatively free market for the control of companies. Again, until the 1980s, there were so many inhibitions on how companies could be bought and sold; as the stock market took off, and people realized they could make lots of money buying, restructuring, and selling companies, many of those inhibitions fell away. The fourth horseman was globalization, the fact that American companies now compete with European and, particularly, Asian enterprises. It’s tough to rank one of the four as producing the biggest jolt, in part because they all worked in tandem to blow up the old ways.

Morris: My own opinion is that the “Four Horsemen” could also be Bruce Henderson, Bill Bain, Fred Gluck, and Michael Jordan. What was the role did each play during the strategy revolution?

Kiechel: Each of them was a disruptive force in his own way. Henderson, after being fired from every job he had before, founded the Boston Consulting Group in 1963. It took strategy as its specialty and developed many of the critical early concepts, like the experience curve and the growth-share matrix.

Bill Bain, who had been Henderson’s best salesman and alter ego, left BCG to found Bain & Co. It really pioneered what I call Greater Taylorism, sharp-penciled analysis of every aspect of what the company did, particularly its costs. This in part because Bain insisted on working with clients for long periods of time—months, sometimes years—and only one company in an industry or competitive set.

Fred Gluck, a poor kid from a tough neighborhood in Brooklyn, turned himself first into a rocket scientist at Bell Labs. Then he led the charge to get McKinsey, the most prestigious and white-shoe consulting firm in the world, to become expert in strategy. For his efforts, he ended up as managing partner.

Michael Porter, an NCAA champion golfer at Princeton, earned a Ph.D. in economics at Harvard then used what he learned to devise a whole new strain of strategy, along the way completely revolutionizing the way Harvard Business School taught the subject. His book, Competitive Strategy, is in its 60th printing, he’s easily the most famous business-school professor in the world, and since Peter Drucker’s death he’s also rated by many as the foremost business thinker.

Morris: Please explain what the experience curve is and why it proved to be so influential.

Kiechel: The experience curve says that your costs should probably decline by 15% or 20% with every doubling in your experience making a product, approximately how many of them you turn out. It also says that if you have the biggest market share, meaning the most experience of anybody in your competitive set, you should have the lowest costs, and the resultant capability to underprice your competitors, maybe forever. The abiding lesson of the experience curve is that companies need to discipline themselves to keep reducing their costs, year in, year out, if they are to remain competitive.

Morris: In layman’s terms, what is the growth-share matrix and what does it help to reveal.

Kiechel: The growth-share matrix was a framework whereby companies could plot all the businesses they own according to each’s share of the market it was in and how fast that market was growing. It suggested, for instance, that if you had a low-share of a low-growth market, you certainly shouldn’t invest in that business, and maybe you should sell it off or close it down altogether.

Morris: In terms of its approach to strategy, what differentiated Bain & Company from other firms when it was founded in 1973, notably Boston Consulting Group (BCG) and McKinsey & Company?

Kiechel: Bain wouldn’t do short assignments that resulted in a report.  Their emphasis was on long-term relationships with a client that allowed them to go really get deep down into its operations to understand them and figure out ways to make them more competitive. Bain may be better than either of the other firms in figuring out ways to cut costs. Bain folks like to say that they sell “Profits at a discount.”

Morris: There are several references in your book to “Greater Taylorism.” What is it and why is it so significant?

Kiechel: You’re no doubt familiar with the work of Frederick Taylor, the early 20th-Century proponent of time-motion studies. He mostly looked at how to make a single worker more productive by taking a stopwatch to everything that worker did. Greater Taylorism, as I define it, is taking a similar but wider-reaching analytic approach to everything a company does—its costs, what it knows about its customers, even matters like the market-share of its competitors.

The strategy revolution brought Greater Taylorism in its wake—before the revolution many companies didn’t even know their actual costs. Today, as turbocharged by things like real-time inventory and point-of-sales information, not to mention overnight stats on almost every aspect of what your company is doing, Greater Taylorism is at the bedrock of figuring out what you should be doing. Your strategy in other words.

Morris: Again in layman’s terms, please explain McKinsey’s “9-box matrix” and what it helps to reveal.

Kiechel: It was a bit like BCG’s growth-share matrix, but less quantitatively hard-edged. It allowed you to array your businesses according to industry attractiveness on one axis, and the business’s ability to compete on another.

Morris: What is the significance of the fact that McKinsey finally “embraced” strategy as “a requisite for every client it served”?

Kiechel: It gave an almost papal blessing to strategy and its importance. When McKinsey, the most august and prestigious consulting firm, said to clients “You need to think about your strategy,” people understood this was no fad.

Morris: Of all that Michael Porter has accomplished thus far, what do you think is his greatest contribution to understanding and executing a competitive strategy?

Kiechel: His five-forces framework provides a pretty comprehensive way to look at industry dynamics and where your company fits within them. But probably his idea that most companies have found even more useful is the value-chain, whereby companies break down every step they take in making a product, partly so they can assess how competitive they are at each step, and whether they want to keep doing it themselves.

Morris: In Chapter 8, you discuss “the mysterious sources of Honda’s strategy” when introducing the 50cc Supercub motorcycle in the United States. Here’s a three-part question: What was Honda’s strategy, in what way(s) was it “mysterious,” and what is the significance of what Richard Y. Pascale characterized as “the Honda effect”?

Kiechel: You almost have to read the whole story, which is a good one. The essence of it was that Western experts said that Honda was acting according to these precepts and analytical structures. But then Richard Pascale went to Japan and interviewed the Honda executives about what they were really thinking when they moved into the U.S. market, he found that they set out to do something that was almost the opposite of what they ended up doing, which they were driven to by changing circumstances. The story raises interesting questions about intentionality in strategy.

Morris: What is the significance of Bruce Henderson’s ouster at BCG to the strategy revolution during which he played such an important part?

Kiechel: By the time his partners kicked him upstairs, in 1980, the strategy revolution was thoroughly established, up and running. After his ouster from the top job at BCG, he was no longer the public face of strategy, the most recognized authority on the subject. Michael Porter, younger and in many ways more personable, took over that role.

Morris: My own opinion is that Pankaj Ghemawat’s book, Commitment (1991), helps to explain why most companies described as “excellent” or “built to last” as well as having made the “leap” from good to great have been unable to sustain a decisive competitive advantage. Do you agree?

Kiechel: I do. One of the trends discussed in the book is the “fiercening” of capitalism over the last forty years. An aspect of that is that the kind of competitive advantage that once might have lasted you for years now can be competed away within months. Industry leaders fall away more quickly than ever.

Morris: In Chapter 12, you suggest that “the wizards of finance disclose strategy’s true purpose.

Kiechel: One surprise about the first two decades of the strategy revolution was that it didn’t focus much on building wealth for shareholders, but rather on achieving competitive advantage. It was only in the 1980s, when the stock market took off, that people began to realize they could make a lot of money restructuring companies, buying them and selling them. Some call it the triumph of “shareholder capitalism”—the notion that creating wealth for shareholders, which usually means keeping the stock price moving ever upward, is the be-all and end-all for companies, and for their strategies.

Morris: Despite general agreement on the importance of core competencies, why have they usually (not always) proven so difficult to develop throughout a given enterprise?

Kiechel: Companies kept wanting to think that they had more competencies than they actually did. They refused to focus on just a few, which is what the experts told them needed to do if the idea were to work.

Morris: During the course of the “strategy revolution,” to what extent and hoe specifically did the perceptions and expectations of the role of the CEO change?

Kiechel: I argue that once it became clear that the most important function of the CEO was to develop and enact the corporate strategy, that often had the effect of distancing him from people below him in the organization. It also encouraged the idea that if a CEO were a great strategist for a company in one industry, he would probably be a great strategist in another industry. And that usually hasn’t proved to be the case.

Morris: In Chapter 15, you examine three versions of “strategy as people,” What are they and which do you prefer? Why?

Kiechel: Really briefly, they are people as the source of innovation which has to be the heart of most companies’ strategies going forward. Second, people understood as parts of social networks, an understanding of which you can build a strategy around. And third people as plug-in-and-take-out-as-needed to work rapid change, this as probably best exemplified these days by how private-equity firms run the businesses in their portfolios. The most fun to watch, for me at least, is the first.

Morris: Where was strategy, and what role (f any) did it play, when the global financial system collapsed in 2008?

Kiechel: It was interesting. The strategy consultants mostly told me they by 2000 or they had been “thrown out” of the top-level discussions and innovations of their biggest financial-service-company clients, outfits like Bank of America and Merrill-Lynch. This because the clients got new CEOs about then who didn’t think they needed the strategic advice. The innovations that got a lot of the corporate-finance giants in trouble were driven by a different breed of new business intellectuals, the quants.

Morris: Looking ahead, let’s say 5-10 years, to what extent do you expect the formulation and execution of strategy to change? Will there be another strategy revolution? If so, what will be its major causes and effects??

Kiechel: Most of the experts agree that strategy will have to become more “adaptive”, meaning that strategies will change faster based on information from people on the corporation’s front lines—dealing with customers, fending off competitors. This won’t represent a new revolution, but rather the continued speeding up of the one that’s been going on. Everything will move faster, and competitive advantage disappear more quickly than ever.

Morris: Which question had you hoped to be asked during this interview – but weren’t – what is your response to it?

Kiechel: Bob, you’ve exhausted me. I suspect by now we’ve exhausted anyone who might read this.

 

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