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September 03, 2005

Is Buying a Strategy Such a Bad Idea for Sainsbury?

Judging by the dire warnings Sainsbury received from the London Business School, the IOD, and a “top FTSE 100 firm”, you’d swear that it had asked al-Qaeda to help it develop a corporate strategy rather than benign management consultants McKinsey and Co. The article in question accuses companies that use consultants for strategy planning of “outsourcing management” and blindly accepting whatever strategies the consultants dictate. In short, it suggests that any company buying in strategy is not “long for this world”.

As you may have sensed from the tone above, I do not agree. But before I continue, I had better disclose that I too am a strategy consultant (not McKinsey) and that the text below needs to be read bearing this in mind. However, let me also add that I would be the first to turn down business if I don’t believe that I will create value for the client: failed strategy engagements never make good case studies. McKinsey knows this better than anyone.

For a variety of reasons, I believe that Sainsbury needs help from whatever quarter it can find it – inside or out. One reason is that the company seems to be irreversibly losing market share to Tesco and ASDA. It has even resorted to buying market share from struggling competitor Morrison. Hopefully McKinsey will help Sainsbury by asking why they are attempting to grow when they should first be learning to manage what they have more effectively.

Second, Sainsbury needs help because it still behaves like a family business. As they say: the first generation makes the fortune, the second holds it, and the third spends it. Before anyone notes that the last family member – Lord David Sainsbury – resigned in 1998, let me suggest that a family culture need not necessarily disappear within a decade. Its effects can easily be transmitted for up to a generation by executives originally employed by the Sainsbury family.

Third, any strategist worth her or his salt would probably explain to Sainsbury that underperforming companies should consolidate their activities and focus on making money from their core competencies at least until performance improves. If Sainsbury has forgotten what its core competencies are, perhaps McKinsey could help it to re-discover them.

Finally, Sainsbury needs help to define its market position. As can be seen from this article, its brand values are diffuse and I am unsure what they stand for in relation to competitors like Tesco and ASDA. In other words, the market is not sure why it should buy there. Yes, Sainsbury should be able to address its brand positioning internally, but for some reason it has not done so. Such fundamental deficits require external assistance to rectify them.

So what could a consultancy like McKinsey do for Sainsbury? I believe that while Sainsbury’s management team are busy executing their daily operational duties (running the company), they are unlikely to find the time to sit down and collaborate on a decent strategy. This is where McKinsey could assist. It could, for example, interview all the Sainsbury executives individually, gather their collective wisdom and experience, and integrate these into a winning plan.

Second, strategy consultants can offer companies like Sainsbury objectivity simply not available in-house. This is because unlike employees, consultants are not (or should not) be constrained by the politics and culture of the organisations they serve. They should not care, for example, that “Sir David was particularly fond of this or that structure”. If it’s losing money, good consultants can do what many employees dare not – they can recommend that it be thrown out.

Third, and related to the above point, many consultants offer research-based expertise. This is the antithesis of the seat-of-the-pants experience-based management style used at Sainsbury (“I’ve been in this business for forty years – you can’t tell me anything about this market”).

Finally, maintaining up-to-date strategy skills is a full time job. Consultants like McKinsey possess these skills precisely because it’s all they do. It could never pay Sainsbury to maintain this level of skill in house. Of course Sainsbury could derive more value by ensuring knowledge transfer at the end of the project, but even without knowledge transfer, it would be better off with an externally developed strategy than they are now.

In summary, a consultancy like McKinsey can ease the burden of Sainsbury executives by providing an objective analysis of alternative scenarios and helping to make their planning a reality.

Posted by Max Blumberg on September 3, 2005 at 09:51 PM in Marketing | Permalink

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Comments

Great post, Max. My own take on consulting is that if you buy it like stationery - ie to use up and replace - then you are asking for trouble, but if you learn from the experience, then consulting could be extremely valuable.

I read The McKinsey Mind a while back, which stated taht all McKinsey engagements begin with an Initial Hypothesis, the McKinseyites guesstimate of what their final report will say. The consultants then use the rest of the engagement to prove or disprove the IH by research.

I would love to know what McKinsey's initial hypothesis will be in this case. I think most 173ers hope that McKinsey will encourage Sainsbury's down a road of food-based distinction, not more slavishly following Tesco.

Posted by: Adrian Trenholm | Sep 3, 2005 11:58:02 PM

If McKinsey start with an initial hypothesis and then seek to either prove or disprove it, that sounds quite limiting to me. It doesn't sound like a way of being open to lots of possibilities. Also, I hope they openly disclose this hypothesis at the get-go...

Posted by: Johnnie Moore | Sep 4, 2005 8:05:13 AM

When I worked withy them the inside view of the intial hypothesis was called the "Holy Shit Slide"

The objective was to use the clients own data to show that becuase of this and that they were going to fall off the clifff without M's help. The bill usually over L10 million pounds.

I have yet to hear of one of these assignments rteally working having live through 3 of them years back at CIBC.

I do believe in the value of the outside ey and of making a thought process central - but we found them very disabling of the in house folks. better to hire Hugh and Johnnie as long terms advisors

Posted by: robert Paterson | Sep 5, 2005 1:03:43 PM

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