The Boston Consulting Group

views updated

The Boston Consulting Group

Exchange Place, 31st Floor
Boston, Massachusetts 02109
U.S.A.
Telephone: (617) 973-1200
Fax: (617) 973-1399
Web site: http://www.bcg.com

Private Company
Incorporated: 1968
Employees: 4,000
Sales: $1 billion (2002)
NAIC: 541611 Administrative Management and General Management Consulting Services

The Boston Consulting Group (BCG), based in Boston, Massachusetts, is one the most influential business strategy consulting firms in the world. BCG employs some 2,800 consultants drawn from the ranks of America’s top business schools, including the University of Chicago, Harvard, Stanford, and Wharton (University of Pennsylvania). A major share of the firm’s clients are among the world’s 500 largest corporations, but BCG also advises mid-sized companies and non-profits as well as performing some government work. The company’s areas of expertise include branding, corporate development, deconstruction, globalization, organization, pricing, strategy, and technology and communications. BCG maintains more than 50 offices located across North America, South America, Europe, the Far East, and Australia.

BCG’s Founder Launches Business Career in 1930s

BCG’s founder, Bruce Doolin Henderson, was born in 1930 in Nashville, Tennessee. His father was a Bible publisher. Henderson attended Vanderbilt, earning an engineering degree in 1937. Following brief stints with Frigidaire and Leland Electric Co., he attended Harvard Business School. Henderson dropped out three months before graduation to take a position with Westinghouse Corporation, starting out in sales. He worked his way up the ranks, eventually making vice-president. In 1959, he made a career change and went to work for Arthur D. Little & Co, one of the early pioneers in the business consulting field. Major clients of his included Shell Oil and United Fruit Co., but Henderson soon grew frustrated that at ADL he was unable to fully explore his ideas on how corporations should made their decisions. He shared his views with the CEO of Boston Safe Deposit and Trust Co., another ADL client, and was promptly recruited to start up a consulting department for the bank.

Starting out as the only employee, Henderson launched his consulting unit with Boston Safe Deposit in 1963. He hired his first staff person by the end of the year but still had difficulty landing clients. In 1964, he found a way to attract attention, publishing the first of his “Perspectives,” which were short essays designed to stimulate the thinking of senior management. Henderson called them “a punch between the eyes.” In truth, he derived the idea from Reader’s Digest. He summarized interesting business articles and other relevant writings, compiled them as a letter, and then mailed the so-called Perspective to an exclusive list of top executives. Each of Henderson’s Perspectives, which came to be mailed out ten times a year, evolved into an essay presenting his take on the latest business topics. A gimmick in many respects, the Perspectives established Henderson’s business in the eyes of corporate America.

According to company lore, it was in the fall of 1965, when the business housed about a dozen consultants, that Henderson announced at a staff meeting that they needed a way to find a specialty to distinguish themselves from their larger, better financed rivals. After dismissing a number of suggestions, he offered “business strategy.” The immediate objection was that executives would have no idea what they were talking about. “That’s the beauty of it,” was his response. “We’ll define it.”

At this stage in the history of the consulting industry, consultants were brought in to deal with short-term, specific problems. No firm focused on helping corporations plot long-term strategy. Executives were making gut decisions on such important matters as what new product to offer and whether or not to make an acquisition. Moreover, while other consulting firms helped clients to focus on isolated internal operations, Henderson helped them to look outward at the competition and marketplace, as well as to take an overall view of the business. As a result, Henderson’s definition of corporate strategy called for an analysis of the company, the competition, and the state of the industry as a whole. This in turn led to the creation of “tools” that could be used to help in understanding these areas and forge new business strategies.

“Experience Curve” Introduced in 1966

The first of Henderson’s revolutionary tools, introduced in 1966, was called the “experience curve,” which resulted from work done for a semiconductor manufacturer. It held that unit costs go down as a company gains production experience. The experience curve concept allowed client Texas Instruments to underbid rivals by postulating falling unit costs. Ultimately, the concept led to the conclusion that it was imperative to enter a new field first and to grab as much market share as possible in order to lock in an experience-curve advantage over late-arriving competitors. Another major tool introduced in the 1960s was the product portfolio matrix, which pictured a conglomerate as a box with four quadrants: cash cows, dogs, stars, or question marks. The goal was to achieve a balanced mix of cash cows, stars, and question marks, and to sell off the dogs. The terms cash cow and dog quickly became fixtures in the business lexicon.

Henderson’s consulting unit at Boston Safe Deposit was spun off as a subsidiary named Boston Consulting Group in 1968. As the business grew, so did the need for new consultants. By the end of 1968, BCG employed 36 consultants; a year later, that number grew to 62. To meet the need for business talent, the firm began to aggressively recruit at the most prestigious business schools, offering top salaries and luring graduates with promises of cutting-edge, challenging work. In 1970, the number of consultants totaled 100, and in 1971 the figure increased to 130. BCG also opened an office in London in 1970 (its first overseas office was established in Japan in 1966), and then in 1972 the company expanded its operations to Paris. A year later, BCG suffered a setback caused by a raid on its employees and clients by one of Henderson’s most valuable lieutenants, Bill Bain.

Bain was a fellow Vanderbilt graduate and director of development at the school, raising funds from alumni at a salary of $19,000 a year. When Vanderbilt began to think about establishing a business school, Bain turned to Henderson for advice. Henderson was so impressed with Bain, despite his lack of basic business knowledge, that he offered him a job with BCG in 1967. Bain quickly rose through the ranks of BCG, becoming known for his hard work, attention to detail, and physically fit appearance. Within two years, he commanded a six-figure salary, rising to the position of vice-president and overseeing one of four BCG divisions, which began to generate a significant share of the firm’s revenues. There was talk in the air that Bain was Henderson’s likely heir apparent. However, Bain became increasingly frustrated with the BCG approach, convinced he had a better way, and his mentor was not as ready to retire as Bain was eager to succeed him. In 1972, Bain unsuccessfully attempted to pressure Henderson into stepping down.

In 1973, Bain informed Henderson that he and colleague Patrick Graham were leaving to launch their own business, a software company. This announcement came the day before Henderson was scheduled to fly to Spain for a meeting. While dining that first night in Madrid, according to a 1987 Fortune article, he was tracked down “with an urgent call from his secretary. It seems the’software company’ was setting out to solicit BCG clients, although this is a point Bain disputes. Henderson caught the next flight back and frantically began rousting his consultants out of bed to get his firm’s clients before Bain did. Recalls Henderson: ’It was war.’ By the time the guns stopped firing, several weeks later, Bain and Graham had made off with seven of BCG’s consultants and two of its biggest clients, Black & Decker and Texas Instruments.” Bain & Co. went on to establish its own niche in the consulting field, devoting itself to a single client in each industry. To the present day, there remains bad blood between the two firms.

BCG opened its second U.S. office in Menlo Park, California, in 1974. A year later, BCG became an independent company, one of the first to take advantage of the Employee Retirement Income Security Act of 1975 that allowed the establishment of an employee stock ownership plan (ESOP). The ESOP began the process of buying BCG from The Boston Company, the parent corporation of Boston Safe Deposit. (The buyout would be completed in 1979, five years ahead of schedule.) Also in 1975, BCG opened an office in Munich. Overseas business became so important to the firm that by the end of 1977 revenues were split evenly between business originating in the United States and overseas. By the end of the decade, BCG opened another U.S. office, in Chicago, and the number of consultants employed rose to 277.

Henderson Retires in 1985

BCG underwent some changes at the top level of management in 1980. Henderson was succeeded as CEO by Alan Zakon and assumed the chairmanship of the board. On the other end of the employment scale, BCG launched its first class of Associates, hired directly out of college. Most would work for the firm for two to three years and then return to school for their MBA’s, often resuming their careers at BCG. The firm added offices in Los Angeles and Dusseldorf in 1982, followed by a branch in New York in 1984. A year later, a San Francisco office opened; more importantly, 1985 witnessed Henderson’s retirement, although he retained the title of chairman emeritus. (He died in 1992 at the age of 77.) Zakon took over as chairman, and he was replaced as CEO by John Clarkeson. Over the balance of the 1980s, BCG opened offices in Milan, Madrid, Stockholm, and Zurich. During this period, the company also received its first major assignment in China. By the end of the decade, BCG employed 524 consultants.

Company Perspectives

The Boston Consulting Group is an international strategy and general management consulting firm whose mission is to help leading corporations create and sustain competitive advantage. As a truly international firm, our strong global presence offers clients and employees a wealth of cross-cultural experience.

BCG grew by external means in 1990, acquiring the Australian consulting firm of Pappas, Carter, Evans & Koop in the process adding offices in Sydney and Melbourne, Australia, and Auckland, New Zealand. A year later, BCG completed another acquisition, picking up Holt Planning Associates, and also opened new offices in Frankfurt and Hong Kong. In 1992, BCG opened an office in Kuala Lumpur, followed a year later by offices in Monterrey, Amsterdam, Brussels, and Shanghai. The acquisition of Canada Consulting Group also brought with it an operation in Toronto. BCG reached a milestone in 1993, topping the 1,000 mark in the number of consultants it employed. As the U.S. economy heated up in the mid-1990s, BCG saw the demand for its services increase at a dramatic rate, resulting in a rapid expansion of the firm. In 1994, offices were opened in Dallas, Hamburg, Moscow, Bangkok, and Seoul. BCG then established branches in Atlanta, Buenos Aires, Lisbon, Helsinki, Singapore, and Jakarta in 1995, followed a year later by offices in Washington, D.C., Oslo, and Mumbai.

Clarkeson replaced Zakon as chairman in April 1997 and would soon be succeeded as CEO by Carl Stern, who had been with BCG since graduating at the top of his Stanford class in 1974. Furthermore, in 1997 the firm opened offices in Sao Paulo, Warsaw, Budapest, Stuttgart, and Vienna. International growth continued in 1998 with the addition of branches in Mexico City and Copenhagen. In the final year of the 1990s, after opening a Berlin office, the BCG roster of consultants numbered 2,166. The firm continued its expansive ways as a new century dawned, opening a New Delhi office. BCG also partnered with Goldman Sachs to create a venture called iFormation, which was dedicated to the creation of new economy startups. In 2001, BCG opened offices in Athens, Beijing, Istanbul, Prague, Cologne, and Rome as the number of BCG consultants approached 2,800. Much of BCG’s growth during the dot-corn era of the late 1990s came from older corporations fearful of lacking an Internet strategy as well as high-tech start-ups looking for help in establishing themselves as viable, stable companies. The consulting industry as a whole enjoyed a golden age.

Challenges for Consulting Firms in the New Century

When the dot-corn bubble burst, however, and the U.S. economy began to slip in 2001 and worsened in 2002, BCG was forced to adjust to a decrease in business, as clients were reluctant to commit to consulting projects. In February 2002, BCG announced it was cutting some 12 percent of its consulting and support staff in North and South America. The company was not alone in taking this step—all of its major competitors had already been forced to trim staff. During other recessions, consulting firms had appeared to be out of favor, only to bounce back when conditions improved. This time, however, many observers began to question whether a major sea change was taking place. Consulting firms, especially BCG, had never been at a loss to conceive and market big ideas, but now they appeared adrift, unable to produce the next new concept that would serve as a spur to new business. According to a July 2002 Boston Globe article, BCG was “pitching ’asset productivity’ and ’competitive advantage through price.’ … But until the consulting world generates a new approach that synchs up with the times, many potential customers will probably remain in their bunkers until the dark clouds blow over.” Traditional management firms like BCG appeared to be especially at risk, as consulting projects increasingly came to involve the implementation of technology. In 2000, it was estimated that 57 percent of the U.S. consulting market was devoted to IT services, and that number was expected to grow to 70 percent by 2004. To make matters worse for the pure-play strategy firms, they found themselves challenged on two fronts. On one side, the large technology implementation firms were moving into general consulting; on the other, a number of companies developed in-house strategy teams, often at the expense of consulting firms, which found their staffs raided, in some cases by former clients. Moreover, upstart technology-oriented firms that had managed to survive the high-tech meltdown were also looking to offer strategic advice to bolster their own bottom lines. The days of large, opened-ended projects also appeared to be outmoded. Now consultants were generally brought in to accomplish specific projects, an ironic development for BCG, given that the firm made its mark by breaking away from this practice 30 years earlier. Nevertheless, traditional strategic consulting firms like BCG retained many strengths. According to a Fortune profile of the changes taking place in the consulting industry, these firms “still house enormous talent and a wealth of knowledge about how successful businesses operate. But their future will look very different. Many people believe that they are going to get a lot smaller. Their partners may splinter off into several smaller boutique firms. Or they may merge with an IT outfit to gain tech expertise and access to new markets.”

Whether or not any of these speculations become reality, BCG entered this period of uncertainty with a new person in charge. In 2003, BCG partners elected Hans-Paul Burkner to replace Stern as president and CEO. Burnker—who joined BCG in 1981, made partner in 1987, and opened the Frankfurt office in 1991—became the first European to head the firm. According to Tom Rodenhaurer, president of Consulting Information Services, as quoted by the New York Times, “He has his work cut out for him. How do you sustain a partnership in an environment where it does not look like it will get better in the next couple years?”

Key Dates

1963:: Bruce Henderson establishes a consulting unit with Boston Safe Deposit and Trust Company.
1966:: Tokyo office opens.
1968:: Boston Consulting Group (BCG) is spun off as a subsidiary.
1973:: Bill Bain leaves to form Bain & Co.
1974:: BCG gains independence through employee stock ownership plan.
1985:: Henderson retires.
1992:: Henderson dies at age 77. 2003: The company’s first European leader, Hans-Paul Burker, is named CEO.

Principal Operating Units

Branding; Consumer; Corporate Development; Deconstruction; E-Commerce; Energy; Financial Services; Globalization; Health Care; Industrial Goods; Information Technology; Operational Effectiveness; Organization; Pricing; Strategy; Technology & Communications; Travel & Tourism.