Tag Archives: consulting

Strategy’s Eclipse and the Big Chief

One of the more provocative business articles I’ve read lately appeared just last week, on forbes.com. It’s a piece by Steve Denning about the collapse of the consulting firm Monitor. The article has already generated thousands of comments and what its own author, in a follow-up post, calls a lot of “social media brouhaha”.

Most of the discussion so far focuses on Denning’s analysis of Monitor’s collapse. He traces the firm’s demise to Michael Porter’s flawed idea that “sustainable competitive advantage” could be gained in markets “by studying the numbers and the existing structure of the industry.” Monitor, in Denning’s view, was selling an “illusory product” that merely “supports and advances the pretensions of the C-suite.” Where Monitor’s approach to strategy failed was where it matters now more than ever: helping businesses connect with or “delight” customers, or innovate, or do things that customers (or, for that matter, society as a whole) want them to do.

Not everyone agrees with this analysis, of course, and Denning has been responding to criticism and comment on the Forbes site and on Twitter. I am more intrigued by what Monitor’s downfall might signify – whether it indicates that there are larger changes afoot.

Denning himself wonders if the firm’s collapse marks the end of an “era”. Several of his readers and Tweeters (including me) have suggested that pure strategy plays are simply no longer viable. But that observation only scratches the surface, I think. The downfall of Monitor may indicate something else as well – a larger change in the configuration of CEO or executive power within the enterprise, and the end of a certain idea or iconography of the CEO.

Denning approaches this very thought as he lays out his historical argument, which is basically the story of how Michael Porter got lucky and launched Monitor at precisely the right moment. When Monitor first appeared on the scene in 1979, writes Denning, a new era was dawning:

Pursuit of shareholder value (“the dumbest idea in the world”) was just getting going with a vengeance. The C-suite was starting to realize that they could cash in, big time. Along comes Michael Porter with a rain dance that justifies their cashing in. Porter arrived at just the right time. Hopefully that era is now coming to an end. People are starting to see the rain dance for what it is.

I would hasten to add that the dumbest idea in the world, the doctrine of shareholder value, helped usher in another very bad idea that is still very much with us — the idea of the “CEO” that started to take hold at roughly around the time that acronym first appeared on the scene, in the early 1970s. The CEO is largely an invention of that period.

I’ve taken up this theme in a few posts (here and here and here). A number of journalists and academics have addressed this same point, directly and indirectly. For Rakesh Khurana, the cultish construct of the CEO emerges out of the transition from managerial to investor capitalism. In response to the growing power of institutional investors (like pension funds, bank trusts, insurance firms, endowment funds, and money managers), boards had, by the 1980s, come to focus almost exclusively on the search for an outside celebrity CEO “savior” who would not only appease and appeal to newly-empowered institutional investors but also make a big splash in the newly-emergent American business press.

Needless to say, this further consolidated decision-making power at the top of the corporate hierarchy. At the same time, the newly powerful CEO had become a cultural icon of celebrity and success. We made a totem of corporate executive power.

If the mantra of investor capitalism was “shareholder value,” the central mystery of the new faith was the “agency” problem (as described in a now-canonical 1976 paper by Jensen and Meckling [pdf]). The interests of shareholders and managers were now to be “aligned.” Results have been mixed: a myopia set in, putting the “focus more on the short-term management of the share price,” writes Christopher Bennett on a Conference Board blog post, “and less on the long-term management of the business.”

In a Washington Post Op Ed, Michael Useem (who’s written the book on investor capitalism) takes it one step further. He connects the “unrelenting pressure of the equity market on company leaders to meet quarterly TSR expectations” with the offshoring of operations, “regardless of the impact on the domestic workforce.” Worse, it’s invited leaders to behave like sociopaths, or at least irresponsibly: “an incessant equity-market demand on company leaders to focus on their own advantage whatever the disadvantage for others” has made “fewer executives and directors…able to step forward to advocate what is required for a vibrant economy, not just what is required for their own prosperity.”

Shareholder value may have not have been the dumbest idea ever, as Denning would have it, but it was, at best, a Faustian bargain for American society. It was an important article of faith — and not just for the believers, but for society as a whole, during the period in which the celebrity CEO took on his (yes, usually his) unique features and cast, all the trappings of his office.

Strategy, especially Monitor’s brand of strategy, played a crucial role here. Denning refers us to a passage in Matthew Stewart’s The Management Myth:

Porter’s theory thus played to the image of the CEO as a kind of superior being. As Stewart notes, “For all the strategy pioneers, strategy achieves its most perfect embodiment in the person at the top of management: the CEO. Embedded in strategic planning are the assumptions, first, that strategy is a decision-making sport involving the selection of markets and products; second, that the decisions are responsible for all of the value creation of a firm (or at least the “excess profits,” in Porter’s model); and, third, that the decider is the CEO. Strategy, says Porter, speaking for all the strategists, is thus ‘the ultimate act of choice.’ ‘The chief strategist of an organization has to be the leader— the CEO.”

With the passing of Monitor, this concept of strategy may start to go by the board. And so, with any luck, will the idea of the CEO as the “superdecider” (Denning’s word) or super-anything. The rain dance is over, and we can now see the Big Chief as he really is.

The First CEO

For some time now, I have been wondering when and how the acronym “CEO” came into general use. This isn’t just a matter of idle etymological interest. CEO is one of those rare acronyms – like scuba, radar, and snafu – that have become words. And in the course of becoming a word, CEO has redefined our world.

I was intrigued by the entry in Webster’s Dictionary that seemed to pinpoint the date: 1975. Only Webster’s didn’t provide a citation or attestation. So I wrote to the publisher at the beginning of March to ask where this first CEO might be found. A mere two weeks later, a reply came from Joanne M. Despres, Etymology Editor at Merriam-Webster. She informed me that Webster’s researchers had found that first illustration of CEO in a British publication, Neville Osmond’s Handbook for Managers, volume 2 (London, 1975).

But it turns out they had not dug deep enough: “In reviewing the standard sources we use to research dates,” Despres wrote, “I noticed that the Oxford English Dictionary now reports pre-1975 evidence of the word’s existence.” The 2011 online edition of the OED reaches back across the Atlantic, to America, and a little further back in time, a few years earlier, to the March-April 1972 issue of the Harvard Business Review: there we discover “a technician in his early forties who joined the company three years ago as president but not CEO.” (In light of this new evidence, Despres has requested that Webster’s “date for CEO be revised at the first opportunity.”)

I hoped to find but I didn’t find an even earlier illustration yesterday, when I went to the New York Public Library to track down Despres’ OED reference and review past editions of the Harvard Business Review on microfilm. I still have a number of leads to follow. But in the course of my reading it became tolerably clear that someone at the Harvard Business Review made an editorial decision in late 1971 or early 1972 to start using – or allowing the use of — the acronym CEO. This was right around the time Ralph F. Lewis was named editor of the Review (in 1971). Lewis instituted a number of important changes at the Review; this fateful concession to shorthand may have been one of the more minor changes he made, but it had immediate consequences.

Once the term is allowed into the Review, it begins to populate the pages of the journal. There is no turning back. Along with the instance cited by the OED editors, there are a number of early illustrations of CEO in the Review of 1972. This one appears in Myles L. Mace’s article on “The President and the Board of Directors”: “I use the title ‘president’ to mean the chief executive officer, recognizing that in some corporations the CEO may have the title ‘chairman of the board.’” (Mace’s earlier articles for the Review, in 1965 and 1966, use “chief operating executive,” “chief executive,” and “president,” but not CEO. His Directors: Myth and Reality, published in 1971, adheres to the same long form usage.) We find the newfangled acronym, again, in “Conflict at the Summit: A Deadly Game” by Alonzo McDonald. Here, McDonald takes some care in introducing it:

Leaders are still consumed with the problem of how to organize the summit. Inevitably, it is the first topic that a newly appointed chief executive officer (CEO) wants to discuss with his most trusted counselors and confidants.

And then he can use it freely:

Many CEOs who sincerely see themselves in the role of moral leaders are perceived by others as confirmed and passionate addicts of power.

The point is not that the Harvard Business Review foisted the term CEO on us. It had most likely been in use, in the MBA classroom and in the corporate boardroom, for some time. The Review certainly helped disseminate the acronym; and it’s worth remembering that readers, subscribers and contributors were then, as now, influential, powerful and connected to other influential and powerful people. McDonald, for instance, would be named Managing Director at McKinsey in 1973. Lewis came to the Review from accounting firm Arthur Young and was “director of several prominent corporations”; at the time of his death in 1979, he sat on the boards of Houghton Mifflin, Twentieth- Century Film Corporation, and Paine, Webber, among others. Mace was one of the leading lights of Harvard Business School and served, as well, on a number of boards.

Mace’s work on the role of directors (in Myth and Reality) was especially influential and timely. There was then, as now, an urgent need for new bearings – a new orientation; and the sense that it is time to dispense with institutionalized illusions and find new direction goes well beyond issues of corporate governance. New, big, disturbing questions about the role of business in society, the counter-culture and the emerging global economic order are coming to a head. It’s not without significance that it’s at this moment – at the dawn of late twentieth-century neoliberalism — that CEO makes its first appearance.

It is only a matter of a decade or so before the word is regularly in the newspapers, on the TV, and on everyone’s lips, and the CEO has become what he is today: a cultural icon, celebrated and hated, creator and destroyer, a symbol of American success or the villain behind America’s current woes.

UPDATE: For a slightly earlier (1970) illustration of the acronym and some further discussion, see this post.