On ‘The McKinsey Method’
Takeaway: McKinsey’s latest opus on the Next Arena Of Competition could just as easily be had for "a $1.50 in late fees at the public library.”
Updates since original publication on October 30:
December 15 to integrate McKinsey agreeing to pay $650M for helping Purdue Pharma boost opioid sales
Escaping McKinseyLand is Hard, Even for McKinsey
“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 by the Wall Street Journal, 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 analysts to promote the analysis; someone in the 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 last week ('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:
Other than using the big word "arena" instead of the words 'economic system’ (or “ecosystem”) — this actually makes sense strategically; McKinsey competitor Boston Consulting Group is now jumping into the fray of designing business ecosystems — and “arena-creation potion” instead of systems thinking (this also makes sense; systems thinking is not easily accessible conceptually, particularly for the linear-thinking West, which is why James F. Moore wrote The Death of Competition….in 1996), The Next Big Arenas of Competition feels like 213 pages of 'happy-to-glad’ edits. 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 cycle of jargon that swarms at high altitudes:
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 seared themselves into my memory, not for their novelty so much as the rehash that has become mind-numbing, a steady charge of infinite-channel 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.
At Boeing and Starbucks, Different Problems but Similar CEO Messages
The headline is from Chip Cutter’s piece in the Wall Street Journal on Monday.
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” — the simplistic cost-cutting logic that powers big consulting engagements in the name of “enterprise transformation” — have never panned out for anyone other than the partners at consulting firms selling these kinds of engagements. 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.
Another way to frame a fix to the fundamentals:
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 artificial intelligence) and far more on manipulating the structure within which actions are determined, to define the rules of play for everyone else. In other words, strategy is not an analysis that can be poked, prodded and probed, say in “extensive slides decks” from an activist investor, particularly if said analysis doesn’t come with an original creative vision.
In a Tuesday interview with CNBC’s Jim Cramer, 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, a new model for big growth and top-line innovation that starts with the intentional interaction of markets in an organized and persistent way. Think ‘market interoperability’ before data interoperability. The intentional remix of markets — ‘differential connectedness’ — the becomes voltage to spark the novel and the next arena. Here are three ‘rough mixes’, offered as big bore ideas to illustrate:
Microsoft + Eli Lilly (who on paper is leading the race to “$280 billion by 2040”, until that market forecast hits the reality of employers dropping coverage of GLP-1s, at scale) — collaborating to invent ‘specialized cognition’ around the production of cardiometabolic health. No one is currently doing this.
Nestlé + Equinox in a $40,000 gym membership (something Equinox is already doing) packaged as a benefit innovation/employee retention sold by say Cigna to say MGM Resorts, which just dropped coverage of GLP-1s for its 74,000 employees, but yet is also “desperate for workers”.
Stellantis + Starbucks to construct a national infrastructure for EV charging (something Starbucks is already doing)
Operations isn’t strategy. And all technology is operations.
When it to comes to the Big AI Thing as a game changer, here’s the ground truth, via Russia vs. Ukraine:
“….Still, beneath the invisible net of high-tech surveillance, much of the battlefield resembles wars past. “If you think of it in general terms, it’s the maneuverable defense of the Second World War. Nothing has changed,” Nesquik said, referring to a strategy that stressed mobility and opportunism. “Don’t forget about minefields. It is not as simple as it seems. All new is well-forgotten old….”
— from Scenes of Trench Warfare in the Age of Drones, New York Times, November 1, 2024
The lesson for management teams and MBA programs the world over: 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 on Friday. “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, says O’Toole. 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. A short list of the“abruptly quitting” and ousted:
In the past month: German Chancellor Olaf Scholz; Stellantis CEO Carlos Tavares; Intel Corporation CEO Pat Gelsinger; VillageMD CEO Tim Barry; Kohl's CEO Tom Kingsbury; Northvolt CEO Peter Carlsson; France’s Prime Minister Michel Barnier; South Korea's ruling party leader Han Dong-hoon; Dave & Buster’s CEO Chris Morris.
In the past quarter: Volkswagen CEO Pablo Di Si, Nike CEO John Donahue; CVS Health CEO Karen Lynch; Aetna CEO Brian Kane; Starbucks CEO Laxman Narasimhan; President Joe Biden; Democratic presidential candidate Kamala Harris; the entire board of directors for 23andMe.
In the past year: Nestlé CEO Mark Schneider; Boeing CEO Dave Calhoun; Campari Group CEO Matteo Fantacchiotti; Hertz CEO Stephen Scherr; Wipro CEO Thierry Delaporte.
Leaders are risking more to avoid losses than to achieve gains. 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. To engage with mind stretch: john@bluespoonconsulting.com