Escaping McKinseyLand is Hard, Even for McKinsey
Takeaway: Trouble starts when means conquer ends. The hard thing is positioning novel objectives, not finding the technical potential to reach them.
Updates since original publication on October 30:
December 15 to integrate McKinsey agreeing to pay $650M for helping Purdue Pharma boost opioid sales
The PowerPoint Powerhouses Struggle with Strategy
Trouble starts when means conquer ends.
“Boeing a pioneer of the jet age and one of the most strategically crucial companies to American economic success, has lost its way. Getting back on track will require a daunting campaign to win back the trust of travelers, airlines, regulators, investors and its own employees.
This year, a fuselage panel blew off one of its jets in midair. Its Starliner space capsule left two astronauts stranded in orbit. Its biggest union halted airplane production, worsening its cash drain. It is poised to plead guilty in a case tied to two fatal accidents, and its credit rating is flirting with junk status.
There are many potential villains here: a culture that put financial engineering before aerospace engineering, an outsourcing strategy that shifted work to lower-cost factories or suppliers, a pursuit of production goals over safety goals, and distant leadership removed from employees….”
— from What Went So Wrong With Boeing? by Andrew Tangel and Jon Sindreu, The Wall Street Journal, October 25, 2024
The day before this journalism was published, PowerPoint Powerhouse McKinsey did some extensive and meticulous head-scratching around the future of competition. The output, The Next Big Arenas of Competition, was published on October 24th. It weighed in at 213 pages.
McKinsey marketing took over from the McKinsey analysts to promote the analysis. Someone in the McKinsey public relations department landed an interview between McKinsey senior partner Chris Bradley, a co-author of Big Arenas, and Financial Times innovation editor John Thornhill. From Thornhill’s piece ('Corporate Wizards Out-Magic The Muggles'):
"When the McKinsey consultant Chris Bradley tries to explain the changing nature of corporate competition, he turns to the fictional universe of Harry Potter. A few exceptional “wizard” companies have emerged this century, which seemingly operate in a different dimension to their non-magical “muggle” counterparts, he says.
“Something strange is afoot in the industrial landscape whereby a small set of firms in a few arenas have really driven all the dynamism and value creation in the world in a way that is historically unusual,” Bradley tells me, snapping back into more traditional McKinseyese.
His views reflect the findings of a new 213-page McKinsey Global Institute study he co-authored on the next big “arenas” of competition, trying to identify the most promising industries of the future...."
I invested attention to read the content and contemplate its contents.
My take: The Next Big Arenas of Competition feels like 213 pages of 'happy-to-glad’ edits.
Other than using the big word "arena" instead of the word “ecosystem” and “arena-creation potion” instead of systems thinking, I couldn’t find insightful or iconoclastic analysis of contemporary business issues. It was small-bore and obvious. More bluntly, I didn't get ROI from my engagement with the content, probably created by a team of low-cost junior analysts and fresh MBAs, probably offshore, searching Google and mining McKinsey databases of past engagements to recycle the loop of jargon that swarms at high altitudes.
To wit:
“The many striking differences between the 12 arenas of today and non-arenas inform our understanding of the arenas of the future. Arenas earn far greater profits than other industries do, they spawn a disproportionate number of global giants, and they offer unusually strong opportunities for new entrants to become powerhouses.
Three combined ingredients in an “arena-creation potion” tend to generate the escalatory mode of competition that characterizes arenas. The telltale elements of a forming arena are business model or technological step changes, escalatory investments, and a large and/or growing addressable market. The presence of these elements can lead to escalatory competition among players, who make large investments to gain not only market share but also a product quality edge, compounding the benefits and further setting them apart from other companies in a race to the top.
Certain industries create more value and have a greater impact than others. We call these outperformers arenas of competition. They are defined by two characteristics: high growth and high dynamism. Due to their growth, they capture an outsize share of the economy’s overall expansion; in terms of dynamism, market share within them changes hands to an outsize degree.”
Two highlights stand out, not for their novelty so much as the rehash that has become mind-numbing, a steady charge of cliché, servicing a pyramid that won’t be standing in five years.
On the Big AI thing (Thing One):
"As companies seize these AI-enabled opportunities, the industry could become an arena. Given the rapid pace of development and breakthroughs in AI, many aspects of this field will likely undergo considerable change by 2040, with significant potential for outsize growth and dynamism over the next two decades."
On the Big Obesity thing (Thing Two):
"The rapidly growing market for obesity-related drugs is poised to expand further as pharmaceutical companies race to develop new versions of the GLP-1 agonists. In our modeling, the market could grow from $24 billion in 2022 to $120 billion by 2040 in a lower range of scenarios and to $280 billion by 2040."
In all fairness, I suppose you have to give some credit to McKinsey, also trying to rewire itself and its business for growth (see McKinsey Boss’s Next Big Consulting Project: His Own Firm) — everyone is trying to find better words to describe, inspire and persuade in a world that has reached its Omega Point, a place of maximum complexity. No one really understands the machinery, including the people supposedly in charge.
An “Optimized” System is a Dead System
From, At Boeing and Starbucks, Different Problems but Similar CEO Messages.
Boeing’s new boss wants to return the manufacturer to its engineering roots. Starbucks’s new chief executive says the chain must embrace its own origins as a coffeehouse.
Both executives are aiming to solve a tricky problem: how best to revive a flagging company?
The dual turnaround attempts playing out at the same time and in the same place—Seattle—are drawing the attention of management gurus and CEOs, along with employees, investors, coffee drinkers and fliers, all looking to decipher how the executives will change their organizations.
The leaders took their jobs within weeks of each other. Boeing’s Kelly Ortberg started on Aug. 8, while Brian Niccol’s first day at Starbucks was Sept. 9. They are confronting wildly different problems. (Only Boeing, for instance, has a union on strike and is burning through its cash reserves.) But the playbook for fixing the companies is proving to be remarkably similar so far.
As the two CEOs addressed investors and employees in recent days, they used some of the same language and emphasized familiar concerns.
“First, we need a fundamental culture change in the company,” Ortberg wrote to Boeing staff on Wednesday. A day earlier, as Starbucks suspended its financial guidance and disclosed weak results for its fourth quarter, Niccol said in a video message: “We need to fundamentally change our recent strategy.”
Pure “strategy” is an ongoing interaction that has no finality. Which is why pursuing “optimization” and its first cousin, operational efficiency — the simplistic cost-cutting logic that powers big consulting engagements in the name of “enterprise transformation” — has never panned out for anyone other than the partners at consulting firms selling these kinds of engagements.
Roughly 70 percent of stocks in the S&P 500 underperformed in 2024, posting returns below the broader market’s average. And almost 2,000 CEOs announced their departures last year, or had their announcement made for them, the highest total on record since Challenger, Gray & Christmas began tracking things in 2002.
In biological terms, an “optimized” system has stopped evolving. It is not adapting. Which means it is dying or, worse, already dead. Which means pursuing “optimization” as an objective is a roadmap to make the horseless carriage run faster, not invent the automobile as a new economic system.
Where the PowerPoint Powerhouses struggle with strategy:
Tactical thinking is concerned with individual actions and decisions; strategic thinking with aggregate interactions and conditions. Strategy concentrates less on determining specific actions to be taken (say cost-cutting to juice margins, or M&A to buy growth, or buying the technical potential of The AI Thing) and far more on manipulating the structure within which actions are determined, to define the rules of play for everyone else. Something Donald Trump understands very well.
"Harris and everyone else in the Capitol today were supporting and defending a system that Trump has bent to his will — and all but broken. Trump takes his own oath two weeks from today. In his second term, he’s poised to remake the existing systems in his own image. Nobody quite knows what comes after that."
-- via Trump’s rule-breaking keeps working by John Hendrickson @ The Atlantic
In other words, strategy is not an analysis that can be poked, prodded and probed in “extensive slides decks”, particularly if said analysis doesn’t come with an original creative vision.
In Search of the Immaculate Consultation
In an interview with CNBC’s Jim Cramer shortly before the end of the year, Pfizer CEO Albert Bourla struck a positive tone about activist investor Starboard Value, saying he agreed with some of its criticisms, but maintained that the company is headed in a good direction. “I think we are doing a lot of changes. But if Starboard, and anybody else for that matter, have good ideas, I will certainly discuss them and entertain,” he said.
Many management teams miss or misunderstand the “conjuring” part of market innovation: markets are less ‘out there’ in the ether somewhere, but constructed deliberately.
A modern strategy is an entirely new form of intentionality, innovation at a system level, a technique that starts with the intentional combination of ‘market sets’ into a new economic system (“ecosystem”). Think ‘market interoperability’ before data interoperability. Everything is in the remix, the ‘differential connectedness’ that becomes voltage to spark the novel.
In the spirit of offering Albert good ideas to discuss and entertain, here’s how to launch a new orbit for competition in the markets for GLP-1 consumption + GLP-1 ‘evidence of value’:
Microsoft + Eli Lilly combining as keystones to invent ‘specialized cognition’ around the production of cardiometabolic health.
Microsoft + Eli Lilly extending their keystone advantage to integrate Nestlé + Equinox in a $40,000 gym membership (something Equinox is already doing), packaged as a benefit innovation sold by, say, Cigna to say MGM Resorts as a strategy for employee retention (MGM just dropped coverage of GLP-1s for its 74,000 employees, but yet is also “desperate for workers”).
Microsoft + Eli Lilly + Nestlé acquiring Walgreens as a new care and service infrastructure for the United States, in the process rebranding Walgreens as LillyDirect and selling directly into employers, dislodging the control of Big PBMs on the economics of the drug market.
The lesson for management teams and MBA programs the world over is this: conventional strategy plays the player. Strategy at a system level plays the board. Differently: Technology-led visions aren’t ‘The Next Big Arena of Competition’, they’re the short road to parity, if not the past.
What went so wrong at Boeing is the same thing that is going so wrong at Aetna, CVS Health, Elevance Health, McKinsey, Moderna, Nestlé, Nike, the NHS, Pfizer, Rite Aid, Starbucks, Stellantis, Teladoc Health, UnitedHealthcare, Walgreens, Wipro and WPP: Cost-cutting logic is devouring industries, markets, brands (and lives) at a massive scale.
The durability of firms like McKinsey points to festering weakness in business’s upper reaches, writes Peter O'Toole in Why does McKinsey still get hired? for The Guardian recently. “McKinsey shields weak leaders from accountability. After a preventable shop floor accident or before big layoffs – known as “efficiency consulting” – a McKinsey report can shield a company from an angry plaintiff or its soon-to-be former workers. Its presence offers the plausible deniability that layoffs were just a business decision, one recommended by a respected, external party.”
Today’s leaders either don’t have the skills to meet the accelerating world around them, can’t effect change within their own organizations, or are too afraid to make a mistake and fail. As we close out 2024, career collapse has become the operative ethic, confirming his insight and the legacy risk leaders face when they confuse operations for strategy.
Our strategies and agendas have become aggressively anti-common sense.
The Next Big Arenas of Competition only proves out Matt Damon’s insight from Good Will Hunting: “You wasted $150,000 on an education you coulda got for $1.50 in late fees at the public library.”
Escaping McKinseyLand is hard, even for McKinsey.
/ jgs
John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. Blue Spoon specializes in constructing new industry ecosystems.