August 8, 2024
"We may strive with good reason to escape it, or to escape what is bad in it. But we will escape it only by adding something better to it." - Wendell Berry
To achieve smarter, equitable and sustainable growth, it's crucial to dismantle systemic barriers that favour established players and stifle innovation. This article explores the role of major consulting firms, evaluates the Structure-Conduct-Performance (SCP) Analysis, and proposes actionable steps to foster a competitive and balanced economic environment.
As someone who started their career working with FMCG clients at Nielsen, analysing brand and sales performance strategies of the world's largest multinationals, I've seen firsthand the importance of understanding whether brand performance is driven by consumer demand ('pull') or sales-led strategies ('push'). Given the risk of monopolistic/oligarchic tendencies, stakeholders must take strategic steps to create a more balanced and competitive economic environment, breaking systemic headlocks for equitable and sustainable growth.
Key Issues:
Major consulting firms, including McKinsey and the Big Four, often reinforce existing power structures, inadvertently contributing to systemic 'locks':
📍 Boiler-Plate Strategies: Promoting one-size-fits-all solutions that may not account for unique market dynamics, thus stifling innovation.
📍 High Costs: Their services are expensive, making them accessible primarily to large corporations, which can further entrench existing market leaders.
📍 Influence on Policy: Their close relationships with government regulators can lead to policies that favour established players over new entrants. This stifles competition, leading to asymmetric forces in a particular industry. #dominance
The Structure-Conduct-Performance (SCP) is a model in industrial organisation economics that explains firm performance through the causal relationships between market structure, firm conduct, and market performance. Developed by economists Edward Chamberlin, Joan Robinson, and later Joe S. Bain, SCP posits that the market environment directly influences market structure, which in turn affects firm behaviour and ultimately market outcomes.
SCP analysis is widely used by:
📍 Economists: To study market dynamics and the impact of market structures on economic performance.
📍 Regulators: To identify and address anti-competitive behaviours and enforce antitrust laws.
📍 Business Strategists: To understand competitive landscapes and devise strategies for market entry, expansion, or consolidation.
Innovating the SCP.
To better identify companies on life support (Zombie's) versus those valued by the market, and to measure true customer centricity, SCP can be improved by:
📍 Incorporating Dynamic Analysis: Use real-time data and advanced analytics to capture market changes more accurately.
📍 Integrating Behavioural Insights: Consider consumer behaviour and preferences to understand demand-driven performance. Use a combination of empathy, listening skills and design-thinking techniques with lean start-up methodologies for intra- and entrepreneurship.
To enhance understanding of customer experience and satisfaction, consider using metrics beyond NPS, such as Customer Satisfaction Score (CSAT) for immediate feedback, Customer Effort Score (CES) for ease of interaction, Voice of Customer (VoC) surveys for qualitative insights, Customer Lifetime Value (CLV) for long-term value, and Churn Rate for retention trends, providing a comprehensive view of customer behaviour and preferences. Also hire talent who can speak to customers/ observe behaviours in real-time, and then report on these responsibly, to inform the development process. Invest in better customer-centric tools/ frameworks/ insights/ IP.
📍 Enhancing Transparency: Improve data availability and transparency to reduce information asymmetry and better assess firm health. (especially in the case of zombie* firms)
📍 Customer-Centric Metrics: Use both qualitative and quantitative metrics to measure customer interactions and experiences, ensuring that customer feedback is central to strategic decision-making.
*A zombie firm is a company that is economically unviable yet manages to survive primarily through external financial support, such as bailouts or cheap credit.
Systemic 'Lock' and Equitable Economic Growth
Large players often create systemic 'locks' by leveraging their market power, often with the help of major audit and consulting firms, to maintain dominance and stifle competition. This can hinder innovation and customer-centric growth, leading to growth for the sake of growth rather than smart, sustainable growth. To promote equitable growth:
📍 Encourage Competition: Implement policies that lower entry barriers and support small and medium enterprises (SMEs).
📍 Regulatory Oversight: Strengthen antitrust laws to prevent monopolistic practices and ensure fair market access.
📍 Innovation Support: Provide incentives for research and development, particularly for smaller firms.
Use Case Examples
Big Beverages
The category leaders dominate the market through extensive distribution networks and brand loyalty. Their market conduct includes aggressive marketing and strategic partnerships, which can lead to market saturation and limit opportunities for smaller competitors. For instance, Coca-Cola's market dominance is often attributed to its vast distribution network and strong brand equity, creating high barriers for new entrants.
Big Media
Companies like Disney and Comcast control vast portions of media content and distribution, influencing cultural narratives and consumer choices. Their dominance raises concerns about content diversity and market access for smaller media firms. The BBC, CNN, and Bloomberg also hold significant sway in shaping public discourse. For example, the BBC is the most widely used source of news in the UK, but its reach is lower among younger and less formally educated audiences. CNN has been a major player in cable news since its inception, influencing political narratives and public opinion.
Platforms like X (formerly Twitter) and Facebook (Meta) have immense control over digital interactions and information dissemination. These platforms can amplify misinformation and create echo chambers that distort public perception. For instance, during the UK general election, manipulated media on X significantly influenced voter opinions. Meta's control over platforms like Facebook, Instagram, and WhatsApp gives it unparalleled power over online advertising and content reach.
Big Tech (e.g., Google, Amazon)
These firms exhibit significant control over digital markets through network effects, data control, and strategic acquisitions. Their dominance often leads to regulatory scrutiny due to concerns about privacy, competition, and innovation stifling. For instance, Google's control over search and advertising markets has led to multiple antitrust investigations globally.
Big Four Consulting Firms
The Big Four consulting firms—Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY), and KPMG—dominate the global consulting and auditing markets, leading to less competition and innovation (cognitive diversity) and ultimately fragility.
- Audit Market Control: The Big Four audit over 80% of U.S. public companies, including 100% of the Fortune 500 companies. This extensive coverage underscores their dominance in the auditing field, making them indispensable to large corporations seeking reputable audit services.
- Comprehensive Service Offerings: Beyond auditing, the Big Four have expanded into management consulting, tax, and legal advisory services. This diversification has allowed them to become one-stop shops for various professional services, further entrenching their market position.
- Global Reach and Influence: The Big Four's global presence enables them to serve multinational clients effectively, leveraging their extensive networks and resources. Their ability to provide consistent services across different regions makes them attractive to global corporations.
- Client Relationships and Hospitality: Each Big Four firm invests heavily in maintaining strong relationships with clients, often spending millions on client hospitality and entertainment. This strategy helps them retain lucrative contracts and ensures ongoing engagements with major corporations.
- Regulatory Influence: The Big Four's involvement in regulatory processes and their employment of former regulators highlight their influence over industry standards and practices. This relationship can sometimes lead to criticisms of regulatory capture.
How to stop war and tyranny:
1. Diversify Consulting Approaches: Encourage the use of specialised boutique consulting firms that offer innovative, tailored solutions anchored to end user/consumer 'needs and wants' be it conscious or unconscious.
2. Enhance Regulatory Frameworks: Strengthen antitrust laws and support policies that promote fair competition and innovation.
3. Focus on Customer-Centric Growth: Use improved SCP analysis to prioritise customer feedback and drive sustainable, equitable growth.
By applying these strategies, stakeholders can better understand market dynamics and work towards creating a more balanced and competitive economic environment, breaking systemic headlocks for smarter customer-centric business models and ultimately to stimulate more balanced, equitable and sustainable growth.
About the Author:
Andrew Soteriou, Founder & CEO at FlowLabs/ Venture Partner and former co-founder and COO at Fifth P, Europe's leading boutique strategy consultancy based in London. Andrew has served as an Executive Leader at various retail and consumer companies, Strategic Advisor at PWC/Strategy&, Global Revenue Growth Director at UpClear in New York and London, and co-founded various strategy and consumer tech businesses.
Andrew is a regular speaker at consumer goods and technology events in the US, Europe, and Africa. Most recently, he was a panel member and keynote speaker at the AI/Big Data and Smart Cities Expo in Europe (Amsterdam)
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