McKinsey & Company: Managing Knowledge and Learning

McKinsey & Company was founded in 1926 as the Accounting and Engineering Advisors and it grew rapidly. The case describes the steps taken by McKinsey & Company to transform the firm into “snowball makers” and “snowball throwers.”

1. What was the organization design that was in place at McKinsey and what did they want to change? Did the change in design complement their strategy? What were the key barriers to implementing change?

The organization design in place at McKinsey was general in nature. The consultants were to be well trained, highly intelligent, disciplined analyst. Though the employees were good problem solvers, they often lacked knowledge concerning the industry, which was demanded by the clients. McKinsey operated under a One Firm policy. The policy requires all consultants to be recruited and advanced on a firm-wide basis, all clients be treated as McKinsey & Company responsibilities, and that profits be shared from a firm pool, not an office pool.

The vision of the firm stated they wanted to be “one focused on issues of importance to top level management, adhering to the highest standards of integrity, professional ethics, and technical excellence, able to attract and develop young men of outstanding qualifications, and committed to continually raising its stature and influence. Above all, it was to be a firm dedicated to the mission of serving its clients superbly well” Currently, within the company there is more emphasis placed upon expanding geographically and new practice possibilities, and less emphasis on technical development and professional skills.

The major design that they firm wanted to correct was the disproportionate emphasis placed upon expansion and new practice policies and technical development and professional skills. In order to make the necessary changes, the firm took many actions. First, focus was shifted to more formal development of the firm’s functional expertise in areas such as strategy, organization, and operation. Knowledge and experience become defused and minimally codified. Second, working groups were assembled to optimize knowledge within the organization and its strategy. Finally, the firm felt the need to develop more legitimate multiple career paths.

The change in design complimented McKinsey’s strategic objectives. The development of knowledge management infrastructures, emphasis on core competencies, and improvement of employee career paths each support the strategic objectives of the firm.

A key barrier is that it took significant time to implement change into the flawed system primarily because of the firm’s geographic expansion. The growth pattern in the past had been very rapid, so it was difficult for the firm to quickly make changes in all the offices around the world. Also present was the challenge to link together the knowledge and expertise of thousands of consultants worldwide. A second barrier was the older employees within the company who were reluctant to change. Many of the veterans believed that any strides towards a product-driven approach would have the potential to damage the firm’s distinctive advantage of local presence. It was hard to reach consensus with the vast number of employees. A third barrier is that it took time to change the minds of consultants and to arrange their priorities in such a way that is consistent with the firm’s strategy of “snowball makers” and “snowball throwers.”

2. Analyze McKinsey’s culture in terms of its capacity to support the strategic objective of changing McKinsey into a firm of both “snowball throwers” and “snowball makers.” Support your arguments with evidence from the case, noting the role of socialization, selection, norms, rituals, symbols, stories, or other cultural components. Use the congruence framework to describe how McKinsey’s culture fit with the strategy and other components of the organization.

As the firm grew rapidly in the early 1970s, the demand of their clientele increased proportionally. In 1976, Ron Daniel was convinced that the firm could no longer succeed with the generalist model. Therefore, changing the structure of the firm was necessary. For example, he appointed one of the most respected and productive senior partners as McKinsey’s first full time director of training and created industry-based Clientele Sectors. He also encouraged more formal development of the firm’s functional expertise in areas like strategy, organization, and operations.

The following decade, McKinsey experienced slower growth due to competition from BCG as well as the overall economic and social environment in Europe and the US. This led the firm to realize the need for knowledge management, client impact, and developing multiple career paths for the firm’s consultants to create growth in the future. As the company made these changes, it increased their capacity to support the strategic objective of changing McKinsey into a firm focused more on clientele services.

To develop the knowledge infrastructure, McKinsey made a major commitment to build a common database of knowledge accumulated from client work and hired a full time practice coordinator who acted as an “intelligent switch”. They also expanded its hiring practices and promotion policies to create a career path for deep functional specialist whose narrow expertise would make them more I-shaped than the normal profile of a T-shaped consultant. They also created computerized data bases such as Firm Practice Information System, Practice Development Network and a manual Knowledge Resource Directory.

McKinsey & Company felt a need for a more client service oriented team. They focused the teams from being Engagement Teams (ET) to Client Service Teams (CST). As CSTs the firm could add long term value and increase the effectiveness of individual engagements.

Finally, to focus on growth of individual consultants, McKinsey shifted its emphasis from a Generalist Model to that of a Specialists Consultant Model. The firm created to career paths for client service supports and administrative staff; practice-dedicated specialists and practice coordinators.

These changes allowed McKinsey to move from being a firm strictly centered on snowball throwers into a firm that practices both snowball throwing and snowball making. However, if all consultants do not recognize the benefits of the company strategy, they will hinder their progress of maximizing capacity.

According to the congruence model for organizational analysis, McKinsey’s culture is described within the strategy and other components of the organization. Within Inputs are environment, resource, and history. In this environment, there must be a competitive work atmosphere. One of the main competitors is BCG. The overall economic and social environment of Europe and the United States greatly affected the business of the company. McKinsey’s customers are beginning to demand the best services. Human Resource is the belief in people as a prime resource, and the willingness to let people experiment. The firm’s belief in organizational resource is that the highest standards of integrity, professional ethics, and technical excellence exist. The firm was founded in 1926 by James and McKinsey and has been expanding for over 70 years. There are three key figures in the growth of McKinsey.

The first manager of the New York office, Marvin Bower, advocated the “One-Firm” policy. In 1976, Ron Daniel was elected Managing Director. He successfully integrated the firm’s highly successful client-relationship consulting mode. Daniel used the leadership approach, which allowed the firm to shift their focus from general consultants to industry or functional specialists, while still keeping a watch on client-relationship consulting. A director in the New York office, Fred Gluck had three main contributions. First, there was a commitment to build a common database of knowledge accumulated form client work and developed in the practice areas. Second, new systems and procedures were installed to make the data more complete, accurate, and timely. This allowed the information to be accessed as a reliable information resource, not just an archival record. Third, knowledge development was a central firm activity. By building FPIS, knowledge would be ongoing and institutionalized, not temporary and project based.

The second step in the model is the Transformation Process, which includes culture, task, people, and formal organization. The main transformation in culture areas manifests in the change of the model of knowledge development. The model changes from “discover-codify-disseminate” to “engage-explore-apply-share”. The “discover-codify-disseminate” model approaches developing knowledge. The disciplined work of a few staff members in the firm is found by discovering knowledge, then compiled in written form, and given publicity to firm-wide with (out) practicing.

The “engage-explore-apply-share” focuses on building individual and team capability so that everyone in the firm has the responsibility to engage in collecting knowledge, exploring it through real cases, applying it to clients’ problems. As a result, this information is shared (transferred) within the firm. Since knowledge is only valuable when it is between the ears of consultants and applied to a client’s problem (so is the main works of consultant services firm), that is why they keen to develop the latter.

According to the task, in the 1970s, as the firm began to have more increasingly sophisticated clients and were faced with aggressive challenges of new competitors like BCG, McKinsey began losing both clients and recruits to BCG. Ron Daniel believed his firm could no longer succeed pursuing the generalist model. There is a need to supplement the local office-based model of “client relationship” consulting with the basic of “thought leadership”. Daniel worked hard to restore the firm by developing consultants’ skills. Expertise became the norm, creating industry-based Clientele Sectors in consumer products, banking, industrial goods, insurance and so on. The firm was introspected and reinvented, with growth resuming by the early 1980s. A cautious optimism returned to McKinsey for the first time in almost a decade. Daniel was successful at integrating the firm’s highly successful client-relationship consulting mode with the leadership approach.

The firm shifted focus from general consultants to industry or functional specialists. McKinsey’s competitive advantage was created. A key portion in the transformation process deals directly with individuals. According to the Generalist Model, consultants are to be well-trained, highly intelligent generalists, disciplined analysts. While consultants were excellent generalist problem solvers, they often lacked the deep industry knowledge or the substantive specialized expertise that the clients were demanding. The “T-shaped” consultants implicated an individual training model within the firm. to let those who supplemented a board generalist perspective with and in – depth industry or functional specialty.

The formal organization consists of the control and coordination system and the structural changes that occur. The firm incorporated two information systems: FPIS and PDNet. The team could narrow the focus from the universe to four core options in just over a month. Structural changes were also evident at the firm. The firm shifted their emphasis away from geographical sectors to industrial sectors.

The final step in the model is Output, which includes the organization, groups, and individuals. A firm’s success can be measured by comparing their past and present figures. Offices within the firm increased from 24 to 69 from 1975-1995. Engagements increased by more than five times during the same period. Within product and service, there are seven functional capability groups and sex Clientele Industry sectors in McKinsey at the present time. The company has expanded its business scope greatly over the last 20 years. The effectiveness and efficiency of the firm has increased dramatically. These measures have increased because of technology innovations and a new information system.

3. Explain why the reward system at McKinsey works against snowball making. Describe how McKinsey’s reward system fit with the strategy and other components of the organization.

Although “snowball making” had strategic significance for McKinsey & Company, the culture and reward system of the firm did not support it. For instance, the existing culture does not recognize knowledge development as a core activity. Practice development was seen as less important than client development because internal status hierarchy based largely on the size and importance of one’s client base. In addition, at promotion time, nobody reviewed your PD documents or other snowball making practices. Practice development was seen as the creation of experts the generation of documents in order to build consultant reputations. Although they had a great deal of knowledge, the current system did not encourage consultants to share knowledge or apply it to solving client problems. Obviously, such an environment and reward system does not provide incentives for generalist consultants to excel at “snowball making.”

Gluck commented that, “There are two ways to look at McKinsey. The most common way is that we are a client service frim whose primary purpose is to serve the companies seeking our help. That is legitimate. But I believe there is an even more powerful way for us to see ourselves. We should begin to view our primary purpose as building a great institution that becomes an engine for producing highly motivated world class people who in turn will serve our clients extraordinarily well.”

When the company made a shift from the T-shaped consultant to the I-shaped consultant, it vowed that they would create career paths and opportunities for these specialized individuals. In the past, the I-shaped consultant was thrown into the mainstream with the T-shaped consultants and had no way to progress through the organization. The changes in the system will ensure the opportunities of multiple career paths.

On the client side, the focus was shifted from short-term project engagements to long term value added relationships. To achieve this objective, they transitioned from the traditional engagement teams to client services teams. Developing long term relationships with clients was seen as a key operating strategy, and therefore should be rewarded.

The knowledge management process was also changed from the “discover-codify-disseminate” model to a looser and more inclusive “engage-explore-apply-share” approach. This shifted the focus from developing knowledge to building individual and team capability. Thus, snowball making was seen as an important activity in the organization.