Summersemester 2013

Case Study
on Current Issues in International Management



An analysis of McKinsey & companys attempt to
manage its knowledge creation, -development and
application.
2 major problems and possible solutions are pointed out.


Lecturer: Mag. Ivana Pereira-Goulart

Authors: Alejandro Padilla (1257959)
Armand de Vial (1257919)
Bernhard Lienbacher (1058197)
Olga Kochankova (1257021)
INTRODUCTION AND APPROACH TO TOPIC

This case study is about McKinsey and Company, one of the biggest consulting firms in the
world. Having been founded in 1926 (by James McKinsey) today the company is one of the
best known international consulting firms with an outstanding and unique history,
throuhgout which it encountered huge success as well as severe problems. Today McKinsey
operates in more than 50 countries, employs more than 15.500 people from over 100
nationalities and calls itself the world leader in Topmanagement-Counselling. Even though
McKinsey is today employing a large number of specialist-counsellors (people who know a
lot about one certain industry), they still consider themselves as beeing the generalist
among counsellors
1
.
Today the McKinsey & Company is organized by industry and functional practices. These
practices are centers of knowledge and expertise which exchange know-how and experience
interntaionally in order to find the best solution for their customers. On the way from beeing
a small local consulting firm to beeing one of the worlds largest consulting enterprizes,
McKinsey had to overcome a number of problems and challenges mostly because the ways
of how business is done have changed considerably during the last century. This Case Study
focusses on those problems arising in connection to knowledge creation, -transfer, -
development and application.
Subsequently we will identify the 2 key problems that McKinsey is facing or had to face that
we find most relevant. Then we will continue by describing them in detail giving possible
solutions to the problems. At the end of the paper we will draw a picture of how McKinsey
could look like, if our proposals were converted into practice. Since the Case Study describes
issues from the past that have already been reacted to by McKinsey, we also take a look at
how the company approached the problems and draw a comparison to our solution.
Problems
Problem 1
One of the problems of McKinsey comes from its ambition to be seen and considered
as "efficiency doctors" or "business doctors" with these key words: serving its clients

1
www.mckinsey.at (2013) Profil
extraordinarily well. But through the decades, clients' expectations changed a lot and the
need for leading-edge expertise has constantly risen.
In the 1950s, Bower who has been elected as Managing Partner did a big mistake in
the strategy he chose to lead. He actually thought that very intelligent and professional
generalists would easily be able to find problems' origins and then solutions to issues his
clients had to face, while keeping in mind the uniqueness of each client's problem. But he
didn't anticipate that a few years later there would be a growth in client management,
combined to the slowing of the divisionalization process and, even more important, the
emergence of a new competitor the Boston Consulting Group (BCG), which is still a major
player in this industry today. As a consequence of this policy, McKinsey became an "elite
consulting firm unable to meet the demand for its service".
Finally in 1971, the Commission on Firm Aims and Goals realized a study which
pointed the major fact: the firm had been growing too fast. Its report highlighted that the
firm really payed attention to the excellence of its problem solvers as generalists, but totally
forgot the substantive specialized expertise clients were looking for. These problems are
extremely important, especially while expectations of increasingly sophisticated clients
system rise and when a new competitor is appearing with aggressive policies.
Ron Daniel understood when he was elected Managing Director in 1976 that
McKinsey could no longer keep the generalist model the firm was pursuing, which just
helped to lose both clients and recruits to competitor. He decided consequently to develop
consultants' skills and expertise. He also created an industry-based Clientele Sectors in
different areas, such as consumer products, banking, industrial goods, insurance, etc. Then
they had to imagine and create new career path for deep functional specialist and to
legitimize their roles as a new class of consultants. So that new challenges have been
considered for them, such as a need to be "engagement director capable", or criterias as the
normal associate's more demanding "up or out" requirement.
That's why in the 1990s, McKinsey insisted in building credibility with clients through
specialized knowledge and expert applications of its consultants, in accordance with
McKinsey's motto of serving its clients superbly well.
Other consequences of this specialization that have been denounced are a loss of the
previous sense of village or the famous "one-firm" spirit (that characterized McKinsey) by
the new compartmentalization of activities and the fact that less time was given and spent in
thinking creatively about the problem...

Problem 2

The task of McKinsey was to help development, transfer and diffusion of knowledge
among its 3,800 consultants in 69 offices worldwide. McKinsey is a firm which needed to
dependent a lot on knowledge in order to provide growth and managing in a proper way.
Such a company like McKinsey needed to be able to serve big customers not just minimal
clients, where the quality is work is so to say of a lower and not so high quality. To do this,
they lacked studying in the depth knowledge of industry to satisfy demands of clients.
In the example of McKinsey knowledge for them is a kind of product, with which they
can do whatever they want. They can for example sell knowledge to its customers to make
revenues or just for improving customer value. To ensure this in 1987 Gluck launched a
Knowledge Management Project. The essential part was to create a common database of
knowledge and to make this database work and provide all the necessary information, which
should be relevant and always updated. One more thing was the firm expand its hiring
practiced and promotion policies to create a career path for deep functional specialists
whose narrow expertise would not fir the normal profile of a T-shaped consultant. Trying to
reach all these aims, Mc Kinsey created a database of clients engagements with all the
needed and reliable information. Knowledge were formalized and prioritized. To add to this
they elaborated information resource, which consisted of a list of all firm experts and also a
key document titles by practice area.
So, most difficult goal of the company was to manage, release and benefit from the
knowledge that already held by the experts within the company. There was a strong need in
communication of all the experts about their findings. From the foregoing it follows that
consultants needed to change from T-shaped to I-shaped for the knowledge infrastructure to
be effective. This movement from something original to something that is more specializes
played a prominent role.
Solutions
Solution to Problem 1

When McKinsey started its operations, in the early 20
th
century, business
environments where stable and easy to predict. Also processes were less complex. Therefore
a sophisticated general consulting knowledge and general problem shooting skills were
sufficient to help organizations of all industries overcome crisis or become more efficient.
However with increased competition and market dynamics both in the counseling industry
and the other industries (McKinseys clients industries) - the generalist consultants are not
up to date anymore. The generalist model may seem useful to McKinsey, because if every
consultant has the same set of skills, it means that McKinsey can very easily sent them
across the globe and use them wherever staff is needed.
In reality however (as explained above) the generalist approach does not deliver
sufficient outcomes anymore. Therefore we propose our solution of letting the various
branches of the company (over 50) become centers of excellence in certain areas. This
means that for example the Zrich branch could focus its knowledge creation, and
development, as well as its hiring procedures on becoming the world leading specialist in
electricity-industry (example)consulting, while the Chicago branch could do so for the car
industry. Now if a Zrich counselor of McKinsey has a problem with developing from a
generalist to an electricity-industry specialist (because he/she finds the topic uninteresting),
there shouldnt be a big problem of relocating this person to another branch where the
future specialization is of more interest to him/her. What is more, with todays
communication technology, the new specialist knowledge of all the various branches could
easily be made accessible all over the world; so if a Japanese car producer demands
counseling, a small team from the Chicago branch would fly to Japan, and use the Chicago
database to analyze and solve the problem. The team would not have to consist of many
people, because after all the counselors in the Japanese branch are still great generalists (a
heritage from the old model) and can therefore help out with easy tasks. This sums up our
proposed solution. We think that McKinsey should let their branches become specialists for
certain branches without completely losing the ability to solve general and frequent
problems). This way, customers from all industries all over the world can be helped quickly
and sufficiently of course given that the McKinsey counselors are open to travelling a lot.

Solution to Problem 2

One of the main challenges that McKinsey needed to do to solve this problem was to
improve the communication between all of the different divisions and its employees. Also,
the knowledge gathered needed to be delivered in a much digested way, making it easier to
sum up all the information.
The company needed to emphasize to its employees the importance of the
commitment of transfer and sharing knowledge. By doing so, McKinseys employees would
have known from the start that they job demanded them to share all the knowledge
gathered throughout their work routine, being that a normal way of working.
Every division and every location where McKinsey has an office works and develops
itself in a different way than others. The delivery of information is, by this logic, different in
every office throughout the world. For that reason, a standardization of information input
and output had to be implemented to make it easier to gather and share the knowledge of
all the different offices. Additionally, there is a much important process of the gather of
information during and after working with the clients. This outcome of valuable knowledge
should be acquired with the help of McKinseys structure and set of corporate values.
For the knowledge to be successfully transmitted throughout the company, the team
leaders have to ascertain that the tasks of every working unit were certified with a set of
evaluation at the end of the working process. This means that there must have been controls
at the end of every task so that the company had full certainty that the work was well
performed and that there would be a flow of information after the work process.


Effects on the Company

We know that acquiring knowledge is very important for a company and even more for a
consulting company that lends its services in base of its knowledge. For McKinsey the
challenge was not acquiring the right knowledge but being able to transfer, share and
manage that wisdom.
Growing a global company brings together much challenges and problems, but trying to stay
small with personalized services brings even more barriers. Luckily for McKinsey, they put in
practice a series of practical answers to help with the problems of expanding globally.
The solutions proposed by the team go in accordance with McKinseys practices. We also
think its not about changing the company upside down, but taking the great virtues of the
company and adding new ways of doing things.
There could be some negative effects whenever a company turns to solutions that change
entirely the way they do business originally but in this case following its true values and
norms helped McKinsey to stay as focused and prepared as in the beginning of its time.
The combination of both internal and external resources helped McKinsey to get a broad
view of the challenges it encountered. It is always good to get an external opinion of a
companys development. In this case with more specialization centers help the companys
divisions to get more focused tasks for all the different departments within the company.
All in all, McKinseys global expansion brought together challenges but also opportunities to
develop its knowledge into a more sophisticated system of information. This brought better
work development and a better way of acquiring knowledge and information sources.
References

Bartlett, P. C. (1996). McKinsey & Company: Managing Knowledge and Learning. Harvard Business
School cases, 396-357.
McKinsey & Company Austria
http://www.mckinsey.at/html/profil/index.asp