What Is Management 3.0 & Why You Should Pay Attention To Energize Your Teams

What Is Management 3.0 and Why You Should Pay Attention to Energize Your Teams

Jurgen Appelo is a software engineer, trainer, entrepreneur, author, speaker and traveler, who has been driving agility in companies. One of his works, Management 3.0 , condenses a team management methodology so that they can survive amid chaos and fragility.

This model, based on Edgar Morin’s so-called complexity theory, is based on the notion that a system – a company, a government, a project – is not feasible to analyze as a mere sum of its component parts; rather, it is the relationships and interactions that give it meaning and momentum. To graph this, imagine a network, with interlocking threads connecting each component. These threads are the facts, actions, decisions, and interactions that make up the world.

That is why management has been seen for several years as a system of networks and people, of dynamic relationships, and not only about areas or departments, profits and processes. It is a living system, not machines that systematically replicate the same result.

Principles for energizing and developing talent

In its 3.0 model, Appelo shares several principles that serve to support the work of leaders and teams in today’s changing world. Here are some of them:

1. Energize people

To achieve this, it is necessary to know what it is that motivates them and that is part of their life purpose: the more consistent it is with the purpose of the organization, there will be a greater individual commitment and team cooperation. For the psychologist and professor Edward Deci, there are two types of motivations:

  • Extrinsic: stimuli that are provided from outside the person (for example, a performance bonus, constant congratulations from the leader, etc.).
  • Intrinsic: those stimuli that are internal and relevant to the person, even when it is not their primary goal (for example, a project in charge). However, if you find a meaning, a why in what you do, you connect better and there is your own reward.

Author Daniel Pink offers a similar look at intrinsic motivation in his book “Drive”, where he affirms that most people are moved more by this type of impulse than by extrinsic. In other words, in the end and in essence, people care more about satisfaction than external rewards, although they should not be lacking, and he explains that there are three factors that new management leaders need to take into account to boost talent: mastery -the desire of each one to be better in what is important to him-, autonomy -the impulse to guide his own life-; let me mention self-leadership-; and purpose – intention to serve something greater than ourselves.

2. Empower teams

To achieve this, the author of Management 3.0 points out that it is entirely possible for each team to organize itself, if it has the confidence of the leaders.

At this point, it is essential that those who lead people focus on doing their job and not on micro-management and that teams participate in collective decisions on relevant issues. In addition, it is necessary for everyone to understand that they are part of a joint system, and not the mere sum of individualities, and that the knowledge of market needs is not in the hands of a single person, but that there is a broader perspective of their needs.

To empower, there are four lines of action that are strategic to generate relationships of trust:

  • Let the leader trust his team.
  • Let the team trust their leader.
  • Let team members trust each other.
  • Let the leader trust himself.

3. Development of skills

We already know that it is difficult for any company to achieve results if its members are not trained; and the leaders are responsible for enabling the conditions for this process to take place. Some ways are:

  • Leading by example: living what is preached.
  • Promote self-learning: appreciate personal maturing time.
  • Coaching and mentoring: as transversal support and support tools throughout the organization.
  • Training and certification: to raise standards against the competition.
  • Collaborative learning: internal development, where everyone learns from each other.
  • Learning from error: doing retrospectives and tests in controlled environments.
  • Measure the results: feedback in the shortest possible cycles; use of keeping metrics on information radiators; indicators agreed between those who participate.
  • Smaller teams: the author recommends no more than 10 to 12 people.

4. Improve everything and observe the team environment

It is key in the management 3.0 model to focus on real continuous improvement, for which it is necessary to facilitate change processes and model the natural resistance that may appear.

Some suggestions for leaders are to observe the team environment, what they need, and let it be known that you are available; find cracks or faults and go to their roots to promote solutions that the team implements; define clear and specific goals and have great communication skills, a key factor of every good manager.

Also, incentivize defining small victories or milestones that energize people; review achievements and not just failures; and it is also essential to recognize people.

The implementation of this leadership style implies a cultural change in companies that is not necessarily rapid, although it can be agile, if you have the conviction and vision to carry it out.

Ultimately, it depends on each company how far they want to go and on each leader, how much they want their teams to develop. Two questions that only they can answer.


Source: What Is Management 3.0 and Why You Should Pay Attention to Energize Your Teams


Many teams use Mind Maps to explore certain topics. Similarly you can use Personal Maps to explore your team itself. Personal Maps facilitate team collaboration and bonding in a rather distant world. With this video, you will learn how to use Personal Maps to break down the barriers of cubicles and longer distances, and then you may even learn how silly you were when you thought you had nothing in common! Here you can learn more about this Management 3.0 Workout: https://management30.com/product/work… Here’s a trick, instead of presenting your own, spark conversations by presenting each other! What are you waiting for? Try this 7-minute exercise out and tell us below how it went!
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Killing Strategy: The Disruption Of Management Consulting –


Since former Boston Consulting Group consultant Clayton Christensen first used the words “disruptive innovation” in 1995, nimble startups have challenged incumbents in every field from music to manufacturing.

The industries that have proven the most vulnerable to disruption have been those with:

  • One or a few major players
  • Relatively outdated business practices
  • Slow technology adoption

Oddly, management consulting is rarely named in discussions about industries vulnerable to disruption (unless you ask Christensen), despite the fact that it meets all of the above qualifications.

But the disruption of management consulting is not a hypothetical. Management consulting has already been beset on all sides by competitors and new technologies. They have maintained status and growth through prestige, branding, and long-time client relationships, but they’re ultimately no more immune to the forces of disruption than any other industry.

Like the taxi industry, management consulting is primarily human-driven. Hourly or per diem billing, rather than outcome or value-based pricing, is still the general rule (even as industries like law move away from billable hours). The increasing pace of technological change means that more and more, consultants’ recommendations are out of date nearly as soon as they’re made.

Consulting, in other words, is inefficient, inflexible, and slow to adapt. Any of these weaknesses alone would threaten disruption — possessing all of them points to a major fight ahead.

McKinsey, Bain, and BCG, of course, have weathered existential crises before. These consultancies offer a highly brand-driven, prestigious, and hard-to-quantify product to Fortune 100 companies with plenty of cash to spend.

If you dig deeper into the specific types of services that these firms offer their clients today, however, it’s clear that a tectonic disruption is hitting management consulting just as it has hit many other industries before. It may be a slow and gradual change, and the big names may well endure — no matter how thinned their ranks — but a change is coming.

The invention of strategy

Before Bruce Doolin Henderson opened the doors of Boston Consulting Group on July 1, 1963, the concept of “competition” barely existed in American business culture, let alone strategy.

There were great, successful companies. Companies made plans. Those companies were not, however, thinking analytically and rigorously at a high level about the classic three C’s of strategy: their customers, their costs, and their competitors.

“What companies didn’t have before the strategy revolution was a way of systematically putting together all the elements that determined their corporate fate… the pre-strategy worldview lacked a rigorous sense of the dynamics of competition.” —Walter Kiechel

Before BCG, McKinsey, and Bain, those who owned and ran businesses in America generally dismissed “strategy” as something for generals and political campaigns.

The first management consultants changed that. As business became more complex and global in the 1960s and 1970s, consultancies brought both cutting-edge methods of market research and data analysis as well as access to academic and industry experts to bear on the major challenges of business. They helped companies build more efficient supply chains, improve their product positioning, figure out what markets to exit and which to enter, and more.

Those consultancies pioneered many of the major tools and frameworks companies still use today to develop corporate strategy: the 2×2 matrix, the Experience Curve, SWOT (Strengths, Weaknesses, Opportunities, Threats) diagrams, Porter’s Five Forces, and many more.

As they found success, BCG, McKinsey, and Bain began hiring the brightest, most technical business school students they could find. The MBA became, for the first time, a truly respectable career choice. Between 1970 and 1995, the number of MBAs granted per year rose from 25,000 to 90,000.

The total number of MBAs granted in the US rose from about 4,000 a year in the 1940s to more than 170,000 a year now.

Today, nearly 200,000 students graduate with MBAs every year. The strategy industry is worth $250B, and the value of strategy is obvious to every company, from the smallest startup to the biggest Fortune 500.

According to estimates, McKinsey makes about $8.8B a year, BCG about $5.6B, and Bain & Company about $3.8B — $4.5B. Each one is still growing.

From one perspective, the position of management consulting as an industry has never seemed more secure. But just as their clients are always under threat from new players and technologies, consultants too are not immune to the forces of disruption.

The four functions of consulting

“The underlying principles of strategy are enduring, regardless of technology or the pace of change.” —Michael Porter

Since the early days of management consulting, firms have sought to differentiate themselves by doing more for their clients. In some cases, they’ve even embedded themselves as if they were part of the team.

That’s not always a good thing. The habit of being “part of the team” has landed both McKinsey and Bain & Company in hot water for insider trading and other scandals over the years.

In most cases, though, it’s also why these firms are so successful. Consulting is much more than trading advice for money. Consulting is a bundle of different types of services and functions bound up in a prestigious, highly expensive package. Companies that work with firms like McKinsey, BCG, and Bain expect — and get — a lot out of those relationships.

When the client-consultant relationship is functioning at its best, the consultant gives the client:

  • Information: The data and analyses that take the client’s world, industry, and market position and make sense of it.
  • Expertise: An experienced operator’s perspective on a problem and the different ways that it can be solved.
  • Insight: The rigorous, analytical application of expertise to data to come up with insights that will help the company succeed.
  • Execution: The roadmap to choosing and implementing the changes to be made.

In some cases, of course, management consultants are hired to give cover to unpopular decisions or even to send a message to one’s workforce. In The Firm, Duff McDonald argues McKinsey in particular “might be the single greatest legitimizer of mass layoffs in history.”

“If you were a CEO and felt you needed to cut 10% of costs but didn’t feel you were getting buy-in from your employees,” he wrote, “the hiring of McKinsey generally got the point across quite clearly.”

When client and consultant are working together as initially envisioned, however, those four values — information, expertise, insight, and execution — are the “package” that consultants offer, and each one of these values has been disrupted in ways big and small over the last several years.

Information about customers and competitors is more available than ever. Expertise has been disaggregated. Insight has been productized (and in some cases, commoditized). And execution has, in many cases, been brought in-house or outsourced to freelancers.

As Soren Kaplan has pointed out in Inc, there is a lot about how management consulting works that would lend it to being vulnerable to disruption:

  • It’s highly dependent on manual (computational) human labor — something that computers are doing more and more of.
  • It traditionally has very high margins (and doesn’t bill based on outcomes but time spent).
  • The value is largely time-bound in the sense that the advice often gets outdated quickly.
  • The value is also largely driven by information asymmetry (knowing things other consultants or companies don’t) which is harder to maintain in the internet age

Despite all of this, BCG, Bain, and McKinsey are still growing. The industry is still worth a few hundred billion dollars. If the big management consultants are about to fall, it doesn’t necessarily feel like it.

On the other hand, when we look at each part of the consulting value chain with a critical eye, we can see vulnerabilities, disruption threats lurking, and smaller, more boutique firms booking success after success.

As the original prophet of disruption put it, “we’re still early in the story of consulting’s disruption.”

To understand just how this has all come about, and what the post-disruption future looks like for the big management consulting firms, we took a look at each of the four consulting functions. Our goal was to understand exactly what type of value the consulting firms are offering—and where various disruptors are, or are not, displacing them.

1. Information

The rise of market research firms and databases has made it possible for companies to collect valuable, actionable data all on their own. The rise of business analytics tools has made it possible for them to collect equally, if not more valuable information about the performance and operations of their companies—also on their own.

The availability of this data does not mean that management consulting firms no longer play a role in the collection of information to solve client problems. There are cases where it is more convenient and easier for CEOs to hire a BCG or a Bain to come do this work. It does mean, however, that those cases exist in a more narrow context.

The companies that are relying on consultants for data analysis today are not just your run of the mill Fortune 500 companies. They’re either working on extraordinarily complex data sets, or they’re so far behind the technological curve that they need full-service help.

There was a time when companies would come to management consultancies with virtually all of their strategic problems, and the consultancies would hire the best and brightest out of college to sit at desks and manually collect the data that would be used to solve them. They would use every available resource to understand industries, markets, consumer sentiment, and companies’ product lines. Then a senior partner would come in, make sense of the data, package it, and present it to the client.

At that time, clients’ understanding of their own business was generally at a primitive level.

For decades, one the most effective sales techniques in consulting was asking a potential client whether they knew how much business they were doing across all divisions with their largest customer, and how profitable that business was. The answer, as Kiechel points out, was usually “no.”

Since those days, both internal company data and industry/market research have become more accessible than ever before. Today, knowing the answer to a question like that is table stakes.

A job listing for “Analyst — Healthcare Analytics & Delivery, New Ventures” on McKinsey’s website.

All the major consultancies have built out teams to do data analysis for their clients. McKinsey hires experienced data engineers to work directly with clients, helping them build out a more sophisticated data analysis function.

BCG runs a team called BCG Gamma specifically for data scientists and consultants to work together in analyzing data in areas from “marketing, risk assessment, and customer service to manufacturing, supply chain management, scenario simulation, and competitive intelligence.”

From the FAQ for BCG’s Gamma program.

In other words, the big consulting firms hire people to work on the big questions that come along with the data.

If you’re a hospital looking for a rigorous analysis of the best way to lower your treatment costs while keeping the level of patient care high, you might go with McKinsey. If you’re a global logistics company looking to analyze your entire supply chain to predict places where costs might rise in the future, then you might go with Bain. Either way, the odds are low you have the right team to understand that problem yourself.

Various analytics tools on the market are useful for questions that are smaller in scope, as well as for incorporating data better into the day-to-day decision-making culture.

Tools like Looker, Tableau, Microsoft Power BI, Qlik, SAS, and Domo allow companies to instantly generate reports and dashboards on phenomena like:

  • Customer lifetime value across demographic and behavioral cohorts
  • Conversion rates (site-to-item and item-to-cart) across an entire product line
  • Efficiency of marketing spend and ad targeting

These kinds of analyses can drive big business value. But they’re not easy to set up and become fluent in. There’s a complexity to getting these tools operational that compounds at scale.

When your company has 100, 1,000, or 10,000+ people, building an internal analytics function means changing the culture, building a new team, and making big, lasting changes to how your company works.

That’s a struggle that consulting firms can help address.

For example, Bain & Company highlights a case study in which it worked with a major beverage manufacturer interested in taking more advantage of digital channels. According to the case study,

“…the pace of disruption — fueled by the rapid emergence of new technologies — can make the digital world challenging to navigate. When BeverageCo sought to take advantage of digital, they had many isolated initiatives (such as online advertising and a corporate Facebook page) underway, but lacked traction in any of them. The company also lacked a cohesive vision that promoted collaboration between digital and the traditional corporate structure.”

This company had an online presence generating data, but lacked leadership or a vision around how that online presence should work or how that data could truly benefit its core business.

As a result, the company’s web traffic and sales conversion rates were lower than its competitors’ rates; its social media presence was limited; and its existing CRM tools failed to capture online insights to help the company better engage consumers.

Bain worked with the company to help define its digital strategy, using data to analyze the competitive landscape as well as identify existing internal digital strengths and weaknesses.

While self-serve analytics tools might make it easier for companies to collect and analyze data, they don’t make it easier to build a data-driven culture and vision for the company.

In fact, the growth of self-serve analytics may even drive more data janitoring/data collection projects for management consultancies — as more and more companies realize that they need to be using data to be competitive, many will naturally seek out consultants in order to get help.

At the same time, there may well be a slice of consulting work that does get disrupted as more and more analytics and data tools emerge that make data easier to handle for the enterprise.

Returning to the beverage company example — at the end of its analysis, Bain offered these recommendations:

Notably, the main recommendations from the Bain case study above are pretty rudimentary, and relatively easy to get up and running at any company:

  • Identifying KPIs (key performance indicators) to use to measure progress
  • Installing a CRM that can generate data on consumer relationships
  • Building an SEO strategy for e-commerce

These are more difficult to get going at scale, but they’re not highly advanced from a technological point of view — meaning the data collection aspect is not what’s differentiating the Bain offering in this case.

What’s truly differentiating Bain’s offering in this case (and the management consulting offering in cases more generally) is not so much what the consultant brings as what the client lacks.

The “BeverageCo” from the example above can’t just start using Power BI to understand its business at a deeper level, because it doesn’t even know where to start.

As technology progresses, however, it’s likely that the bar of difficulty is likely to fall lower and lower. Startups working on business intelligence and analytics know they’re fighting for a prize worth many billions of dollars, and dozens upon dozens have emerged to help Fortune 500 companies get the kinds of insights they might otherwise be getting from a Bain or a BCG. But even if “big data” doesn’t obviate the need for expert guidance completely, it can open up a space for more specialized consulting firms who deal specifically with applying the insights from analytics and market research.

For today, Bain, which has helped hundreds of businesses through their “digital transformation,” has that prestige and expertise. That gives their clients confidence that they know what they’re doing.

Expertise has been a cornerstone of the management consulting value proposition for decades. That does not mean, however, that it is completely safe from disruption.

2. Expertise

One of the conventional criticisms of consultants is that they send generalists into companies to do an expert’s job.

Complex problems, the thinking goes, can only be solved by someone with relevant experience.

That’s exactly why consulting firms have long cultivated people with special types of experience outside their walls. From academics and industry veterans to leaders in business and government, these experts can provide consultancies with an operator’s perspective on many types of client problems.

Detail from McKinsey’s recruiting page tailored specifically to “experienced professionals.”

Having a wide network of experts helps consulting firms come up with better solutions for clients. It helps them build up their prestige. Employing the world’s foremost experts in specific fields — say, CPG supply chain management — can even give them defensible advantages in those areas.

Until fairly recently, consulting firms were the only places aggregating expertise from all those different avenues. Today, it’s much easier to get access to “experts.”

You don’t need to work with a Bain or a BCG to talk to someone with in-depth knowledge about supply chain management.

But the specialization of the management consultancies’ knowledge bases — a trend that began during the 1980s — means that even today, much of the world’s operating experience in pillar topics like supply chain management is bound up at firms like McKinsey. While experts may be easier to find, management consultancies have gained hard-fought advantages in solving certain kinds of problems.

Expertise didn’t run most of the big consultancies (at least, not at first). At McKinsey, almost all senior partners were proud generalists. Junior partners, or those with less clout, specialized. Fred Gluck, who left a career as an electrical engineer to join McKinsey as a technology analyst, was a major influence in the other direction.

As Gluck was ascending to the rank of senior partner at McKinsey, BCG was winning clients with its rigorous, strategic approach to consulting. The BCG “strategy buffs” (as Gluck deemed them) were analytical, always looking to improve their art, and highly empirical.

McKinsey had always practiced the situational, “it depends” style of management consulting. Gluck wanted to change that and build a culture of expertise inside the firm.

To do that, he organized internal training on strategic techniques and tools, while also building relationships across academia, think tanks, successful companies, and other institutions. The goal was to use all available resources to turn McKinsey into the world’s leading strategy firm. By 1980, Glucks was responsible for “virtually all McKinsey’s endeavors to systematically build expertise in particular subjects and industries.”

Revenues of the big three management consulting strategy firms. McKinsey’s adoption of strategy coincided with its ascendance as a top revenue-generating firm.

In the wake of McKinsey’s success with building out its core knowledge base, gaining expertise in important fields of industry study became a primary concern for other big management consultancies

Each naturally developed a different focus, depending on the clients they served and how they wanted to differentiate themselves from the others.

Bain, whose co-founders would go on to start Bain Capital, had a particular expertise in finance from the beginning. Over time, they’ve taken on a larger proportion of PE clients, worked on more leveraged buyouts and M&As, and generally handled more finance clients.

MCG, which was the first strategy-first management consulting firm, today has a reputation for being the most “academic” of the big firms, with a focus on corporate development and innovation (that is, helping companies adapt to the digital world, grow, and reorganize).

Many of McKinsey’s earliest partners and client relationships focused on management, operations, and logistics. Over time, McKinsey developed a particular expertise on topics like governance (both corporate and political), development, and healthcare.

A decade after Gluck took over the mission of making McKinsey a “knowledge-centered” company, the McKinsey Global Institute (MGI) was born. The Soviet Union had just collapsed, China was beginning to open, and US firms needed international expertise — something McKinsey stepped in to offer with MGI, which combined macroeconomics with on-the-ground analysis from trained consultants.

Today, some types of specific problems call for specific consulting firms. If you are considering a leveraged buyout, it makes sense to work with Bain, which has advised on thousands of such buyouts. If you are confronting an industry upstart, you might look to BCG, and if you’re working on problems of regional governance in Southeast Asia, you might look to McKinsey.

But outside those fields, the expertise function of consulting has been largely unbundled. Today, the same types of experts that big consultancies have hired for decades can be consulted independently, without needing to pay for the rest of the management consulting package, thanks to so-called “learning networks.”

Companies doing this in Europe include Third Bridge and AlphaSights, while in America, the standout is Gerson Lehrman Group (GLG). GLG and others like it vet experts similar to how a consultancy like McKinsey would, then hires them out to answer companies’ questions on an on-demand basis.

Whether you’re an investor who needs to understand the future of US coal production or a technology executive looking for an expert on AI, you can work with GLG to find the right source, then pay by the hour for a confidential, informal chat (or series of chats) on whatever topics you choose.

While GLG describes itself today as “a learning membership connecting business people trying to solve problems to experts that can solve them,” the company was started as a publishing business.

The idea was to get experts to help write guidebooks that could help investors at hedge funds and other firms understand the investments they were making in particular industries.

Over time, GLG found that its investor clients were much more interested in having casual, one-off chats with its experts than in reading its reports. The fund managers GLG talked to, according to the New York Times, said “many of their best insights came through casual conversations, not from formal reports.”

GLG retooled the company to focus on connecting experts with people who needed them. Ironically, with this new business model, the company found that management consulting firms — often hungry for very specific, niche expertise — were some of its best customers.

Today, GLG’s experts include former ambassador to China Jon Huntsman Jr., former Obama campaign manager David Plouffe, and former Under Secretary of Defense for Intelligence Michael G. Vickers, among other high-profile names in government, finance, and business. Clients can even use GLG to have a conversation with people like Pamela Thomas-Graham, a former executive at Credit Suisse and partner at McKinsey.

“You could call what we do consulting, but it isn’t, really,” GLG President and CEO Alexander Saint-Amand told Recode. “We’ve done millions of projects. Our members have answered almost 100 million questions on our various sites. But the primary experience is a one-to-one phone call or meeting.”

The popularity of expert networks has risen significantly in the last decade as banks, hedge funds, and others have found the value in on-demand industry experts. In 2008, companies less than $100M on expert learning networks. By 2017, that number was $800M and rising.

Integrity Research estimates annual expert network spending will pass $1B before 2021.

Whether the rise of on-demand expertise will challenge the position held by big management consultancies remains to be seen.

Today, the specific types of operating expertise that McKinsey, BCG, and Bain have invested to acquire over the last several decades offer a powerful, differentiating value proposition. That expertise has been hard-won, and it’s something that can be easily provided by the on-demand economy.

At the same time, with the growth of these expert networks, it’s not hard to imagine the range of situations that truly call for the help of management consultancies being narrowed. Ten years ago, it would have been justifiable to work with McKinsey solely because the world’s experts in a particular topic are there. Today, it’s highly likely that that very same expert (or a comparable one) is reachable for either an on-demand conference call or a longer, freelance engagement.

Ultimately, however, expertise is not what the consultancies imagine they are selling anyway, as Bain’s early motto makes clear:

“We don’t sell advice by the hour; we sell profits at a discount.”

3. Insight

Inherent in Bain’s idea of “profits at a discount” is the promise that consulting is more than just someone coming up with a plan for your company.

At one point, it had more or less sufficed for a consultant to “come up with a strategy.” In the 1960s, however, consulting became a function that was actually supposed to get results.

BCG led the way. With its famous “$1M framework” — otherwise known as the growth-share matrix — BCG didn’t just change how people thought about their businesses; its insights altered how people built businesses too.

At the time, the predominant pressure in American business culture was to diversify. High tax rates on corporate gains meant that the best way to spend profits was to make acquisitions. At the same time, powerful antitrust laws (like the 1950 Antimerger Act) made it difficult for companies to acquire other companies in their own industries.

Buying companies exclusively in other industries, however, had the effect of turning formerly focused corporations into overextended conglomerates — many of which would begin to fail over the next decade.

The late 1960s’ enthusiasm over conglomerates quickly waned as the bust phase of the cycle kicked in towards the end of the decade. The new conglomerates were unfocused, overextended, and inefficient. BCG set forth to try and fix that.

Helping companies focus was the aim of BCG’s growth-share matrix — called the “$1M framework” because its application alone could merit BCG $1M in client fees.

The point of the growth-share matrix was to help a company understand which of its (often many) businesses should be nurtured, which should be ended, and which needed further study.

The matrix was a box, separated it into four boxes, measured along two axes: relative market share (x) and market growth (y). Each line of business was plotted within this matrix with a bubble proportional to the size of that business.

Consultants would plot out all of a company’s businesses, revealing which dominated markets, which were growing quickly, and so on.

The real power of the matrix emerged when companies also plotted competitors. Plotting 3 — 4 different competing conglomerates, the errors that individual companies were making in the lines of business they chose to nurture became much more apparent.

American Standard was a lighthouse case study for this process for BCG.

Like many other big corporations of the time, American Standard was involved in dozens of different businesses, and it was impossible for any executive to maintain a complete understanding of each one. Virtually all of its available investment capital, however, was going into just one specific line of business: small air conditioners.

Plotting American Standard on the growth-share matrix revealed that while its small air conditioner business was in a market that was growing quickly, its share of that market was a magnitude smaller than that of air conditioning giant Carrier.

American Standard’s small air conditioner business was, in other words, what BCG came to call a “question mark business” — a business with high growth but low market share. Question mark businesses were possibly worth investing further, but they weren’t sure bets.

Even worse investments were low-growth businesses. With high market share, they were tempting to maintain, but would often suck profits indiscriminately without much return. BCG deemed these “cow” businesses.

With low market share, they were simple under-performers, or “dogs,” and should be cut immediately.

The only sure bet in the growth-share matrix was a business with high growth and high market share: the “star.”

Using the growth-share matrix, American Standard realized that its pet project was completely unsustainable and had to be sold. Fortunately for the company, because small air conditioners was a high-growth industry, it was easy to find a buyer willing to pay a premium.

In the end, BCG gave American Standard not just a good strategy, but the right tactical advice — and taking that advice resulted in a huge long-term victory for the company.

The growth-share matrix became BCG’s “$1M framework” because it packaged the consultancy’s clearest and most original strategic thinking into a neat and digestible visual.

The framework was simple, but it also presented a whole new way for companies to think about their businesses and where they invested their time and money. It was a genuinely innovative insight into allocating capital, dressed up as a 2×2.

Bain (whose partners actually coined the phrase “$1M framework”) would create its own “insight product” in 2003 with the Net Promoter Score. Today, there are so many different tests, diagnostics, scores, and tools companies can use to measure customer satisfaction that the idea of paying Bain to help run a customer survey almost seems absurd.

In fact, virtually every management consulting framework (including the growth-share matrix) has been explained in books, MBA courses, essays, workshops, seminars, and blogs run by ex-BCG, ex-McKinsey, and ex-Bain consultants.

The lion’s share of these frameworks have been picked apart so thoroughly that anyone could attempt (some) implementation of any of them.

The publication of these frameworks does pose a threat to the value proposition of management consulting firms.

As Clayton Christensen writes in the Harvard Business Review, the most prestigious management consulting firms today operate like a black box. Companies bring them a problem, and they produce a solution. Visibility into what happens during that process is highly limited.

Clients judge whether or not the solution will be good based on indirect signals: the consulting firm’s brand and prestige, the specific domain of knowledge required to solve the problem, and the company’s prior experience with that firm and consultants in general.

Their ability to judge whether the solution was effective after the fact isn’t great, either: outcomes are often expected 6 — 12 (or more) months after the fact, and those outcomes are often contingent on many other business and industry factors. When there’s no direct, lower-level output metric to measure, it can be highly difficult to assess whether a consultant’s recommendation “worked.”

But with the “tools of the trade” publicized — and holes poked into the black box — clients are empowered to ask more questions, expect more rigorous performance benchmarks, and have more of a say in negotiating what they feel is a fair deal. By demystifying the management consulting process, books, classes, and blog posts bring more transparency to the marketplace of ideas.

Over the years, we’ve seen companies move from hiring consultants to building out entire strategy functions inside their company — teams, staffed by ex-consultants and others, who can perform the role of a management consultant internally.

They can do this because of consulting turnover. According to Kennedy Research, turnover at prestigious consulting firms averages around 18% — 20% a year.

McKinsey, the big consulting firm that has pressed the hardest for growth, has more than 30,000 alumni. These alumni graduate with great strategy credentials, and they have to do something with them. Clayton Christensen writes,

“We know that many companies have hired small armies of former consultants for internal strategy groups and management functions, which contributes to the companies’ increasing sophistication about consulting services… Typically these people are, not surprisingly, demanding taskmasters who reduce the scope (and cost) of work they outsource to consultancies and adopt a more activist role in selecting and managing the resources assigned to their projects.”

If companies are hiring ex-consultants to do strategy, and working less with the big consulting firms, it would certainly spell a recipe for disruption.

However, in 2016, the management consulting industry grew again, more than 7% from the year before, with total yearly spending at a new high of $58.7B.

If the glut of ex-consultants on the job market and “tools of the trade” in the public domain were true existential threats, you’d think the management consulting industry would be shrinking. It isn’t, and the key to understanding why may lie in the fact that $15.8B of total management consulting spend — more than a quarter — was technology consulting.

It’s not difficult to imagine a need for technology consulting amidst some of the biggest credit card and personal information thefts in history. After technology, the next fastest-growing sector of consulting was risk and regulatory consulting. It’s not hard to understand that either, given the impact of Brexit and GDPR on corporate planning.

The frameworks developed by big management consultancies may be public knowledge. The consultants who implemented those insights may be on the job market. But that does not replace the utility of consultancies when it comes to new and emergent issues.

Consulting firms are tasked with looking ahead to figure out what major development will matter to their clients next. That’s the only way they can stay alive, which has been true ever since BCG’s designed its growth-share matrix to help 1960s conglomerates regain their sense of focus.

As it happens, many companies went on to follow BCG’s advice, either directly or indirectly: the most famous among them being General Electric.

In 1981, Jack Welch became CEO of GE and began pulling the company out of a bureaucracy-caused tailspin. Welch instituted a new rule that GE would only be involved in an industry if it could be the #1 or #2 player in the industry. He sold off 408 underperforming businesses, laying off 100,000 people who worked at them.

BCG praised GE as the perfect example of a “premium conglomerate” — a company that stayed focused despite its diversification. Even more impressive, however, was the level of execution on that focus. The public didn’t see GE as a threatened or weak company, and share prices were fine.

When Welch decided major layoffs were strategically important, it was a tough pill for many of GE’s defenders to swallow. And yet, that ability to execute is what changed GE from “fine” into the most valuable company in America for six of the nine years between 1996 and 2005.

4. Execution

Coming up with a strategy and actually helping a client implement that strategy are two completely different things.

But contrary to the narrative that consultants just tell companies what to do, without helping them do it, consulting firms have actually been aware of this for a long time. The strategy side of consulting has always existed alongside the execution side.

From the 1960s through most of the 21st century, the strategy side was dominant. Today, the wide availability of tools that help companies collect and analyze huge amounts of data, on-demand domain experts, and previously “black-boxed” consulting resources and ex-consultants have taken a chunk out of the strategic value proposition of the big management consultancies.

Subsequently, it’s the execution side where those firms are staging their resistance.

By the mid-1970s, every consulting firm knew the average client company needed help executing on their recommendations. The strategies they were prescribing had gotten complex, the result of an intellectual-industrial arms race started by the “strategy buffs” at BCG. Each consulting firm dealt with this pressure differently, but one firm emerged as a standout: Bain & Company.

Bain & Company had always prioritized intimate client relationships where it could drive greater value, preferring a few high-value engagements to having more numerous but less valuable relationships. The company made three crucial decisions early on about how it would work with clients to make that happen:

  • It would only work with only one company in any given industry.
  • It would only work with clients on multiyear contracts.
  • It would commit large amounts of time, money, and manpower to helping those companies get results, including (at times) sending Bain employees to work on-site to learn on the job.

To maintain confidentiality, “Bainies” did not carry business cards (no one at Bain did for the first seven years of the firm) and would only refer to clients by codenames. The depth and secrecy of these long, intimate relationships led to Bain’s reputation as the “KGB of management consulting.”

Bain’s habit of embedding itself as part of the team made it a darling consultant of the 1980s. Wall Street enshrined “shareholder value” as the ultimate good, and Bain made shareholder value its North Star metric.

This would occasionally get Bain into trouble.

For example, Bain was working with Guinness when it was uncovered that four men — the so-called “Guinness four” — had been manipulating the stock market in order to inflate Guinness’s share price.

At the time, Bain had 35 consultants working at Guinness headquarters and was bringing in $20M a year. One of those consultants, Olivier Roux, was “on loan” as a controller, financial director, and member of the board.

At the same time, that embedded team of Bainies helped Guinness sell 150 companies from its portfolio and make a powerful expansion move into hard liquor with a few strategic acquisitions. Profits for Guinness grew six-fold after these changes, and Bain was never officially accused of any wrongdoing.

Today, Bain — like every major management consulting firm — is focused on the rise in need for digital and technological consulting.

As more and more companies face their inevitable “digital transformation,” BCG, Bain, and McKinsey are helping them understand exactly what they should do. Most importantly, they’re helping them execute.

In the 1960s and 1970s, a corporation would have gone to BCG for help understanding which lines of business to cut and which to invest more money in. BCG’s recommendation would have been to cut this business, take the money from this one and give it to this one, and so on. The execution of that recommendation is something any CEO could handle.

But today, there’s often a much wider gap between idea and execution. “Build a multi-platform analytics stack so you can predict how your users’ demand will change dynamically in the future” isn’t the kind of plan that you can simply execute on without expertise.

As the management consulting firms handle this new world, they’re doing less and less outright strategy work and more and more work on execution.

That’s why McKinsey launched McKinsey Solutions, a suite of analytics software products that are sold to and embedded within a client. Solutions is a proprietary analytics tool that lets companies access some kinds of insights on their own, with McKinsey there as a convenient outlet for actually putting those learnings into practice. This effectively flips the conventional consulting model on its head.

Rather than going to McKinsey for advice, and having them crunch the numbers to develop insights, this model allows a company to look at data to form its own hypotheses. After that, it can go to McKinsey for help making further sense of the data and for how best to respond.

If the proliferation of data, expertise, and insight are going to threaten McKinsey’s core value proposition of helping businesses get results, it only makes sense for the company to hedge against this problem. With Solutions, McKinsey is staking out ground that it can defend no matter what disruptive forces attack the rest of the “consulting stack.”

Among those disruptive forces are independent freelancer networks like Eden McCallum and Business Talent Group (BTG). Eden McCallum and BTG bring ex-consultants and other strategically trained, experienced operators together to form lean teams for client projects, and contract them out without the overhead of working with a conventional management consulting firm.

There are billions of dollars a year in massive, business-rethinking kinds of projects that CEOs can only justify to their board if they hire a big name like Bain or BCG. But McCallum and BTG aren’t necessarily angling to take on the entire consulting market today. They don’t need to try and overcome the branding of those firms to beat them, because they can chip away from the small end. They can build a client base among companies looking for more niche help and more routine projects with better defined parameters and clearer expectations.

“In consulting, as in every other industry, the unlocked entryway is in the basement of the established firms,” Christensen says, “While consulting’s core apparatus is focused on bigger and bigger client engagements, small customers are unguarded.”

A new CPG brand trying to figure out how to price its products has a fairly routinized problem on its hands. That’s not a problem that necessitates a McKinsey-level of involvement — and the company can probably get similar results by working with a pricing expert sourced through somewhere like BTG.

Disrupting the disruptors

One model for the disruption of management consulting could be the “inside counsel” revolution that began sweeping the legal world in the 1970s.

Corporate legal departments were once regarded as backwaters for lawyers. The real clout, and money, lay in outside corporate law firms.

Over time, as outside law firm fees rose higher and higher, companies started to look for alternatives. Globalization was driving new transnational legal issues, and this increased complexity made it beneficial for business leaders to have legal support close and on-call at any time. Moreover, with an explosion in the general amount of litigation and activism across the world, corporations realized they needed to “make” expertise “inside the organization,” as attorney Ben Heineman puts it, rather than “buy” it outside the organization.

Forty years later, it is usually the corporate GC (general counsel) who most closely advises a company’s CEO on legal matters — not some senior partner at a corporate law firm. While corporate law firms have their purpose, corporations now mostly prefer to keep their legal work in-house.

Similarly, consulting and strategy teams could be increasingly brought in-house, rather than hired externally.

As Clayton Christensen points out in the Harvard Business Review, the inside counsel model is made possible by the fact that general counsels and their staff today have access to powerful legal workflow and on-demand staffing tools like Axiom. They can get customized support from networks like AdvanceLaw. And they can outsource more basic tasks like “large-scale document and data review” to firms like LeClairRyan, which run leaner and cheaper than a conventional law firm.

A lot of the value that traditional management consultants have offered their clients has been similarly disrupted by technology. But as we’ve seen, consulting firms are nimble. It may help that they themselves invented the concept of “disruption.”

Of course, there’s no guarantee that consulting firms will survive forever in their current state. Every day, there are more ex-consultants ready to share their expertise. Every day, the tools that companies can use to form their strategy get better and more advanced. And every day, consulting firms need to prove that they can be relevant in this new world — and not simply the prestige name Fortune 500 CEOs hire to get the board off their back.

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Why Entrepreneurs Start Companies Rather Than Join Them

If you asked me why I gravitated to startups rather than work in a large company I would have answered at various times: “I want to be my own boss.” “I love risk.” “I want flexible work hours.” “I want to work on tough problems that matter.” “I have a vision and want to see it through.” “I saw a better opportunity and grabbed it. …”

It never crossed my mind that I gravitated to startups because I thought more of my abilities than the value a large company would put on them. At least not consciously. But that’s the conclusion of a provocative research paper, Asymmetric Information and Entrepreneurship, that explains a new theory of why some people choose to be entrepreneurs. The authors’ conclusion: Entrepreneurs think they are better than their resumes show and realize they can be more successful by going it alone. And in most cases, they are right.

I’ll summarize the paper’s conclusions, then share a few thoughts about what they might mean – for companies, entrepreneurs and entrepreneurial education. (By the way, as you read the conclusions keep in mind the authors are not talking just about high-tech entrepreneurs. They are talking about everyone who chooses to be self-employed – from a corner food vendor without a high school diploma to a high-tech founder with a PhD in Computer Science from Stanford.)

The authors’ research came from following 12,686 people over 30+ years. They found:

1. Getting a job involves signaling. When you look for a job you “signal” your ability to employers via a resume with a list of your educational qualifications and work history. Signaling is a fancy academic term to describe how one party (in this case, someone who wants a job) credibly conveys information to another party (a potential employer).

2. Entrepreneurs believe their signal falls short. People choose to be entrepreneurs when they feel that they are more capable than what employers can tell from their resume or an interview. So entrepreneurs start ventures because they can’t signal their worth to potential employers.

3. Entrepreneurs have higher average pay. Overall, when people choose entrepreneurship they earn 7% more than they would have in a corporate job. That’s because in companies pay is usually set by observable signals (your education and experience/work history).

4. But the pay is less predictable. The downside of being an entrepreneur is that as a group their pay is more variable – some make less than if they worked at a company, some much more.

5. Entrepreneurs score higher on cognitive ability tests than their educational credentials would predict. And their cognitive ability is higher than those with the same educational and work credentials who choose to work in a company.

6. Immigrants also have trouble signaling. Signaling (or the lack of it) may explain why some groups such as immigrants, with less credible signals to existing companies (unknown schools, no license to practice, unverifiable job history, etc.) tend to gravitate toward entrepreneurship. And why funding from families and friends is a dominant source of financing for early-stage ventures (because friends and family know an entrepreneur’s ability better than any resume can convey).

7. Entrepreneurs defer getting more formal education because they correctly expect their productivity will be higher than the market can infer from just their educational qualifications. (There are no signals for entrepreneurial skills.)

Lemons vs. cherries

The most provocative conclusion in the paper is that asymmetric information about ability (that is, when one party has more or better information than the other) leads existing companies to employ only “lemons,” relatively unproductive workers. The talented and more productive choose entrepreneurship. The entrepreneurs know something potential employers don’t – that nowhere on their resume does it show resiliency, curiosity, agility, resourcefulness, pattern recognition, tenacity, and having a passion for products.

This implication, that entrepreneurs are, in fact, “cherries” contrasts with a large body of literature in social science, which says that the entrepreneurs are the lemons — those who cannot find, cannot hold, or cannot stand “real jobs.”

So, what to make of all this?

If the authors are right, the way we signal ability (resumes listing education and work history) is not only a poor predictor of success but has implications for existing companies, startups, education, and public policy that require further thought and research.

In the 20th century, when companies competed with peers with the same business model, they wanted employees to help them execute current business models (whether it was working on an assembly line or writing code supporting or extending current products). There was little loss when they missed hiring employees who had entrepreneurial skills. However, in the 21st century, companies face continuous disruption; now they’re looking for employees to help them act entrepreneurial. Yet their recruiting and interviewing processes – which define signals they look for – are still focused on execution, not entrepreneurial skills.

Surprisingly, the company that best epitomized this was not some old-line manufacturing company but Google. When Marissa Mayer ran products at Google, the New York Times described her hiring process: “More often than not, she relies on charts, graphs and quantitative analysis as a foundation for a decision, particularly when it comes to evaluating people. … At a recent personnel meeting, she homes in on grade-point averages and SAT scores to narrow a list of candidates, many having graduated from Ivy League schools … One candidate got a C in macroeconomics. ‘That’s troubling to me,” Ms. Mayer says. “Good students are good at all things.’”

Really. What a perfect example of adverse signaling. No wonder the most successful Google products, other than search, have been acquisitions of startups not internal products: YouTube, Android, DoubleClick, Keyhole (Google Maps), and Waze were started and run by entrepreneurs. The type of people Google and Marissa Mayer wouldn’t and didn’t hire started the companies they bought.

Next questions

The paper’s findings raise some interesting questions about how to drive entrepreneurship.

Better signals. When I shared the paper with Tina Seelig at Stanford she asked, “If schools provided better ways to signal someone’s potential to employers, will this lead to less entrepreneurship?”

Imagine a perfect world in which corporate recruiters found a way to identify the next Steve Jobs, Elon Musk, or Larry Ellison. Would the existing corporate processes, procedures, and business models crush their innovative talents, or would they steer the large companies into a new renaissance?

The economic environment. So, how much of signaling (hiring only by resume qualifications) is influenced by the economic environment? One could assume that in a period of low unemployment, it will be easier to get a traditional job, which would lead to fewer startups and explain why great companies are often founded during a downturn. Those who can’t get a traditional job start their own venture. Yet other public policies come into play. Between the late 1930s and the 1970s, the U.S. tax rate for individuals making over $100,000 was 70 percent and 90 percent (taxes on capital gains fluctuated between 20 percent and 25 percent.) Venture capital flourished when the tax rates plummeted in the late 1970s. Was entrepreneurship stifled by high personal income taxes? And did it flourish only when entrepreneurs saw the opportunity to make a lot more money on their own?

Leaving big companies. Some new ventures are started by people who leave big companies to strike out on their own – meaning they weren’t trying to find employment in a corporation, they were trying to get away from it. While starting your own company may look attractive from inside a company, the stark reality of risking one’s livelihood, financial stability, family, etc., is a tough bar to cross. What motivates these people to leave the relative comfort of a steady corporate income and strike out on their own? Is it the same reason – their company doesn’t value their skills for innovation and is just measuring them on execution? Or something else?

Entrepreneurial education. Is entrepreneurship for everyone? Should we expect that we can teach entrepreneurship as a mandatory class? Or is it a calling? Increasing the number of new ventures will only generate aggregate wealth if those who start firms are truly more productive as entrepreneurs.

Lessons learned

  • Entrepreneurs start their own companies because existing companies don’t value the skills that don’t fit on a resume
  • The most talented people choose entrepreneurship (lemons vs. cherries)

[A version of this story originally appeared on the author’s own site.]

Steve Blank is a retired serial entrepreneur-turned-educator who created the Customer Development methodology that launched the lean startup movement, which he wrote about in his book, The Four Steps to the Epiphany. Blank teaches Lean LaunchPad classes at Stanford University, U.C. Berkeley, Columbia University, and NYU.

By: @sgblank

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