Firm’s demise discredits zero-sum strategy

The newest addition to a decade-long process of merger and consolidation in the financial consulting industry was recently announced. Top strategy firm Monitor Group filed for bankruptcy in Delaware, with $500 million in debt against $100 million in assets. Often considered a member of the “big five,” Monitor used to go head-to-head with the leaders of the industry—McKinsey, Boston Consulting Group and Bain & Co. Right now, however, Monitor is being purchased for a meager $116 million by Deloitte, a less-prestigious firm known primarily for its accounting services. This event confounds many in the industry, as well as many students and new grads who are looking into entering the consulting business.

Monitor was founded in 1983 by the most celebrated competitive strategist, Harvard Business School Professor Michael Porter, in Cambridge, Mass. Dr. Porter is the author of 18 books on strategy, having produced bestsellers in business and management, which are also standard textbooks in virtually every business school. It is confounding to see that after all the strategic advice his firm has offered, the strategy firm itself is has failed. According to the jobseekers’ hub, Vault.com, Monitor has dropped from No. 6 to No. 11 in industry ranking in only one year. Scrambling to come to terms with this drama, the business world has come up with different theories.

Outside the business circle, Monitor is perhaps better known in the “pro-democratic” community for providing public relations service to improve the image of the late Libyan dictator Muammar Qaddafi. The $3 million fee provided by Libya’s autocratic regime churned out pro-Qaddafi stories in acclaimed journals such as The New York Times, The Guardian, Newsweek, and The Washington Post, among others mentioned in the leaked document. Monitor also helped with the Ph. D. dissertation of Qaddafi’s son at the London School of Economics, a favorite JYA destination for Vassar students. The campaign concluded with the end of the Qaddafi regime, and was leaked out by the Libyan opposition to the world.

However, the failed pro-Qaddafi campaign alone didn’t cause Monitor’s sudden fall from fame, although it didn’t help either. Instead, the Monitor’s collapse is a symbolic end for the zeitgeist in business strategy today—“sustainable competitive advantage.”

One of the most critical opinions, spearheaded by Steve Denning, champion of the new school of radical management, is that Porter’s philosophy on strategy is fundamentally flawed. Porter’s strategy consists of securing the most slices of the pie by creating “moats” around one’s “castle.” This method of creating barriers to entry is what he terms “sustainable competitive advantage.”

Denning disagrees with the notion of an industry as a zero-sum game, defined by finiteness and stasis. In fact, Denning argues, businesses can create their own customers, just as performing artists create their own audience and “the arts flourish.” Porter’s method of creating barriers to entry, therefore, is futile, outside a scenario like the board game “Monopoly.”

Instead, Denning says, the core of a business is the value it creates for customers, and innovation is what enabled value creation for successful firms like Apple and Zara. In contrast, firms that only focus on short-term stock market gain, such as Walmart, have been going downhill.

No one truly knows where the truth lies, but Denning’s critique has its merits. Monitor has been static in its direction, while many consulting firms have stayed in business by providing one-stop solutions for slimming corporate and governmental customers. For example, even the biggest firms such as McKinsey integrated IT solutions into their strategy-focused service. If we take this point of view, “financial pressure” for the “pure-play strategy firm” didn’t bankrupt the company, as argued by Monitor’s press release. The reality is just the other way around. Under equal amount of financial stress, other innovative firms have used the consumer need to cut costs in order to stay in business. Employees’ comments on Glassdoors.com have confirmed this issue: “Business portfolio currently too focused on Marketing Strategy for Pharma companies.” “Company is very limited in industry and scale.”

Aside from the core strategy failure argument, some emphasize Monitor’s lack of U.S. government contracts that guarantee future income.

This is correct, but Monitor’s spreading itself too thin has contributed more to its failure. Monitor’s demise more rightfully signifies the end of its outdated business philosophy.

What has been happening will continue to happen. As Denning argues, the sustainable competitive strategy isn’t sustainable after all, in the face of others’ innovation. The industry will only further be consolidated and will focus on how to create new value through innovation. Nobody will be willing to pay millions in consulting fees if the value doesn’t justify the cost.

The lesson businesses can learn from this event is a philosophical one. Blind competition that focuses on creating monopolies might seem effective sometimes but are not sustainable in the long term. Therefore, we might ask: Is it value creation, not money making, that defines a business after all? In other words, should a company’s success be measured in monetary terms, a practice we see daily on stock market indices? These are deep questions few seem in the business community seem to care about, which continue to confuse the CEOs of struggling companies and by the way have sunk major players like Monitor. These questions deserve special attention from Vassar students and alumnae/i who are interested in pursuing careers in business and entrepreneurship, since no one wants to work for a company destined to fail.

—Phil Chen is a freshman at Vassar College.

Leave a Reply

Your email address will not be published. Required fields are marked *