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The Boston Globe

Business

How strategic blunders helped derail the iconic Monitor Group

It would appear that Michael Porter’s own firm, the Monitor Group, faltered from the very gaffe that the strategy guru has warned countless companies and nations against: getting “stuck in the middle” without a competitive advantage.

The Cambridge consulting firm that the famous Harvard Business School professor started in 1983 with some colleagues was once proudly independent, and noted for its intellectual approach to problem solving. It used to go head-to-head with the likes of Bain & Co. and the Boston Consulting Group for clients. But earlier this month, Monitor agreed to be taken over by Deloitte, the auditing giant, and filed for bankruptcy protection at the same time.

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It was a steep fall from the 1980s and 1990s, when Porter was a highly sought after growth consultant and widely considered one of the great business thinkers of our time. While the firm still has its admirers, it has struggled financially in recent years, as ownership shifted to younger partners, with complex payouts to founders that left the firm hamstrung, according to people closely involved with Monitor. As the recession descended in 2009, the firm was unable to catch up and make investments to change its course.

Monitor’s president, Bansi Nagji, who declined to be interviewed, said in a statement that the firm had been facing increasing financial pressures as a relatively small, “pure-play strategy consultant.”

“The recent economic downturn, and our constrained ability to make important investments, led us this year to evaluate our strategic options,’’ Nagji said. “We are delighted that this process has resulted in the agreement now being finalized with Deloitte.”

The bankruptcy filing may have been a technically efficient way to get out of office leases in costly locales from Beijing to Sao Paulo. But it also points to the uncertainty lingering for some of Monitor’s 1,200 employees in 26 offices. While ­Deloitte has extended job offers to many people, and, according to Monitor, plans to ask still others, some will be out of luck.

Deloitte did not return repeated requests for comment.

Monitor representatives expect that they will maintain their presence in Cambridge, where the firm has employed 235 people. It’s unclear whether Deloitte will retain the Monitor brand.

Porter, 65, has had limited involvement with the firm over the past decade, according to officials from Monitor and Porter. He has turned his attention to health care overhaul, with his 2006 book, “Redefining Health Care,” and a separate ­effort to persuade companies to maximize profits while also doing social good. He also has been focused on his Institute for Strategy and Competitiveness at Harvard, advising countries from Mongolia to Dubai on how to position themselves to compete in the global economy. Before that, Porter was working on his Initiative for a Competitive Inner City, encouraging investment in small ­urban businesses.

“Michael Porter was obviously a major presence at the firm at the beginning, but less so as the years went on,’’ said Bill Achtmeyer, chairman and managing partner at The ­Parthenon Group, a competitor of Monitor’s.

Porter, in an e-mail to the Globe, declined to comment on what went wrong at Monitor. He said he hopes the best for his former colleagues: “I value my relationship with Monitor over the years and wish the firm and its employees well in this new stage of the firm’s history.”

Still, Porter’s fingerprints have always been on the place, say people who have worked there or done business with the firm. For one thing, its globe-trotting tracked closely with Porter’s expansive international contacts.

The foreign consulting backfired on Monitor last year, when the firm came under scrutiny for a $250,000-a-month contract working for Moammar Khadafy, the Libyan dictator who has since been killed by Libyan rebels. ­Khadafy’s son Seif contacted Porter directly for a project that entailed paying intellectuals and public figures to visit Libya between 2006 and 2008 to improve the dictator’s image internationally, the Globe reported.

As part of the effort, Monitor asked Joseph S. Nye Jr., a former Harvard Kennedy School dean, to meet with Khadafy. Nye also helped the leader’s son with his dissertation at the London School of Economics.

After an internal investigation at Monitor, the firm apologized for the Libya job, calling it a “major mistake.”

A Monitor spokesman, ­Eamonn Kelly, said the firm’s decline was unrelated to the Khadafy affair, and people who have worked with the firm agree that it’s unlikely that single event, while embarrassing, led to Monitor’s undoing.

Close observers of the firm say the generational changing-of-the-guard compounded with the financial downturn took a toll.

As Porter and other founders left the firm — most recently brothers Mark and Joseph ­Fuller — they took with them not only their star power for ­attracting clients, but left the firm in constrained financial shape, as they took their payouts as owners.

But even as times grew leaner, Monitor didn’t necessarily adjust to its reversal of fortune. Tom Stern, an executive recruiter in California, is owed $35,000 by Monitor, according to court documents, for hiring a new partner in Paris.

“They are the most compelling, interesting, and collaborative people I’ve dealt with,” said Stern. But theirs was “not a bean-counting culture,’’ he explained. “It was not the kind of firm that watched every dollar. Maybe in some way, that contributed to their situation.”

The firm concedes that its balance sheet was a “serious impediment” over the past few years, curbing its ability to make investments and grow the firm. And with clients trying simply to survive after the 2008 financial crisis, few were in the market for growth-strategy advice.

Porter himself did not enjoy a big payout after the sale to ­Deloitte. In an e-mail response to Globe questions, Porter said that in a 2009 restructuring of the firm’s ownership, he traded his minority position for one that left him without a vote or an equity stake. In 2011, he said, he formally separated from the firm. Then, “In the recent restructuring and sale to Deloitte, my position was rendered worthless,’’ Porter said.

Earlier this month, news of Monitor’s troubles were the buzz of the consulting community. Achtmeyer, of Parthenon, said Monitor has remained a ­viable competitor, even in recent years.

“I have a lot of respect for the firm, and for Mark, Joe, and Michael. I think they’ve built a great institution,’’ Achtmeyer said of the Monitor founders. He said consulting giants like Deloitte are hungrily acquiring firms to broaden their services; he predicted the deal would help Monitor “move forward in a positive way.”

Beth Healy can be reached at bhealy@globe.com.

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