How This Successful Company Simplified the Business Consulting Industry- Valutrics

The following excerpt is from Richard Koch and Greg Lockwood’s book Simplify.

As a strategy simplifier, Boston Consulting Group transformed the business world. Not only did it spawn a huge and highly profitable consulting industry, it also allowed young people to learn about business more quickly than ever before, and thus lowered the average age of chief executives. It also reinvented business theory and grounded it securely in economics, and in financial and marketing theory. Business became less intuitive and more analytical, and at the time made it possible to use resources much more effectively.

BCG’s model greatly simplified the advice given to any large firm. It told the corporate center and operating managers what to do — focus on their star businesses, increase market share everywhere, cut costs and pass the benefits on to customers through ever-lower prices.

Of course, there were some errors in the theory, but overall it worked, saving companies from making expensive mistakes and pushing them in the right direction. The belief in a simple model and the intellectual force behind it also had a galvanizing and uniting effect on firms that bought into the BCG model. It supplied a common language and logic, shared from the boardroom down through divisions and operating units. The belief that radical improvements were possible in market share, profit and the value of the firm was energizing, reinforcing the economic logic at the core of the advice. Belief in ideas — broadly the right ideas — created huge wealth.

This was pure proposition-simplifying. BCG made no attempt to cut prices: generally, it followed the rather high hourly rates of the market leader, McKinsey. This was a sensible strategy, because the market for high-quality consulting is not price sensitive. Chief executives and boards want the best advice, and they are willing to pay for it. A cut-price offer would merely have called the firm’s credibility into question.

So what was BCG’s appeal?

1. Ease of use

Previously, business strategy either wasn’t considered at all, or was considered too complex to reduce to a simple model. But now, with the use of what the company called the “Boston Box,” it was possible to determine the position of any business in the box and what to do with it by knowing two simple pieces of information: its market share relative to its largest rival; and the future market growth rate. Business strategy suddenly became demystified — it was now accessible, and it could be communicated hundreds of times more concisely, effectively and memorably than before.
The simplicity of the ideas made them easy to grasp and turn into action.

2. Usefulness

The advice was useful because it was based on simple and powerful micro-economic concepts. Market share was useful because it lowered costs. Having higher market share than competitors, and therefore lower costs, enabled prices to be reduced and market share to be increased yet further. Competitors would make lower returns and become less interested in the market. If prices were kept sufficiently low, rivals might even be forced to exit the market altogether, increasing the leader’s market share.
BCG’s system required client executives to think for themselves, based on BCG’s ideas, rather than merely follow expert advice. Internalization of the ideas created the ability and commitment to implement them, and to adapt the strategy when circumstances changed.

3. Art

The Boston Box lent itself to colorful, attractive and simple visual presentations that made the concepts come alive and applicable to client circumstances.
The elegance and simplicity of BCG’s concepts were explained in “Perspectives” — short, well-written tracts — and at CEO conferences held in luxury hotels.

BCG simplified not only the consulting “product” but the process. Because they were simple, the consultancy’s ideas were easily taught to new consultants. And because the consulting was based on ideas, those consultants didn’t need to have decades of experience. The new consultants were relatively cheap, so simplicity also lowered the cost of production, as it usually does. As a result, BCG grew faster than McKinsey and became more profitable because it charged similar fees but incurred lower costs.

Results

In the early 1970s, BCG became a credible competitor in the lucrative business consulting market, and despite the emergence of high-quality “boutique” rivals, it has remained one of rhe the most prestigious consultancies and established itself as a global brand.

Key Points

1. Proposition-simplifying is often a great opportunity for service businesses. If simplifying can increase usefulness, ease of use and art, revenues can be multiplied at the same time as margins expand.

2. The proposition’s value can usually be greatly increased by simplifying. All it requires is sufficient imagination and empathy — an ability to put yourself in the shoes of the least price-sensitive and most profitable customers.

3. Whereas there can be only one successful price-simplifier in any given market, there can be more than one proposition-simplifier, each with a differentiated proposition. Can you think of a proposition that will allow you to carve out a new market and provide your new target customers with a service that greatly increases ease of use, usefulness and aesthetic appeal to them?