Stop the Insanity

Sometimes in the midst of turmoil all around us, with the landscape of the financial services industry--for many of us, our lifeblood--reforming under our very eyes, it's worthwhile to take a step back and reflect upon some enduring business verities.

For today, I nominate the GE-McKinsey "nine-box framework" that dates to the early 1970s. For those of us whose memory does not date to that time, a brief primer: Draw on one axis the attractiveness of the relevant practice group ("industry," in the original parlance) and on the other axis that group's competitive strength in the marketplace vis-a-vis your peers. And then just map your existing practice groups into this 9-sector grid--high, medium, low, on each axis, giving you the most informative tic-tac-toe board you've ever seen.

Above the diagonal, you want to think about, in general terms, investment and growth, while below the diagonal, you may want to consider backing out of those practice areas, milking them for cash, or even (what a concept for a law firm) marketing them to other firms as intact practice groups available for a price.

Don't mistake this for a cookie-cutter approach: Being above the diagonal does not mean that you're the fair-haired child, without giving it any further thought, and being below the diagonal does not mean you're cursed. A strong practice group in an out of favor area is very different from a weak practice group in a hot and sexy area. They require different strategies.

When McKinsey developed the GE "nine-box framework," GE had about 150 business units and the challenge was to segregate those that were generating cash from those that were worthy of cash infusions.

You can't, of course, answer that question by depending on answers from the business units themselves, or the practice group leaders. If you try that game, you invite people to essentially engage in "Liar's Poker," as the most optimistic scenarios will lay claim to most of your firm's resources. This is of course an unpoliced arms race. Something more objective is required.

The insight behind developing the 9-box matrix was to abstract from what the business/practice group leaders would tell you to, instead, look in a very objective way at what that practice group's actual marketplace strength is vis-a-vis your competitors; and then of course to map it against what the ongoing attractiveness of that practice area is.

Simple? Sometimes the best ideas are.

These are days of turmoil, chaos, a once-in-a-lifetime earthquake shaking our financial world to its foundations, and, frankly, days of insanity. Indeed, (according to The New York Times), last Wednesday, when share prices of Goldman Sachs and Morgan Stanley plunged even though the firms were still making money. Glenn Schorr, a UBS analyst, wrote an e-mail message to clients saying, “Stop the Insanity.” He was not wrong.

In your own world, you can stop the insanity. Step back, breathe deeply, and take a clear-eyed look at the fundamentals of your very own firm. It's a 30+ year old technique that has withstood the test of time. Sounds kind of reassuring right about now, doesn't it?