 "Duff McDonald")
THE FIRM: THE STORY OF MCKINSEY AND ITS SECRET INFLUENCE ON AMERICAN BUSINESS
AUTHOR: Duff McDonald
PUBLISHER: Simon & Schuster
Price: Rs 599
ISBN: 9781476737867
Under Bower, McKinsey had a small, idiosyncratic leadership structure. He managed the firm with a kitchen cabinet of three or four people at most. Lee Walton expanded that, creating a shareholders committee of some forty-five members. Daniel brought more than a hundred partners into firm management decisions, a power-sharing arrangement that enabled the firm to become a global force. What Daniel proved was that McKinsey could evolve. In the Bower era, the firm rode the wave of growing demand for basic organizational consulting, first in the United States and then in Europe. The next four managing directors had to contend with a stagnation of demand and the internal complications that ensued. To find new opportunities for McKinsey, Daniel shifted the focus of the firm to 'knowledge.'
This is a critical concept, and one that took a while for McKinsey old-timers to absorb and get used to. They were accustomed to working with industrial firms that never needed to explain to their customers what they 'knew' - they had a product, and the customer could choose to buy it or not. Some professional services firms - lawyers, for instance - have no need to explain themselves either. People know when they need a lawyer. But consultants have to, in essence, constantly make an argument for their own existence, which by the mid-1970s McKinsey had grown confused about. What exactly was its expertise, and how could it convince the world to keep buying more of this?
After his election, Daniel made a point of asking the firm's partners what they thought the firm should be focusing on. Fred Gluck responded with a memo detailing how McKinsey was falling behind, not only in strategy but in operations and organizational consulting too. Sure, BCG had outflanked McKinsey with a couple of savvy charts, but there was an underlying problem more insidious than that: Clients now wanted consultants who knew something, and McKinsey's database of knowledge was razor thin.
The partners agreed that the most pressing need was to expand its offering of strategic planning tools. Daniel asked Gluck if he would head up a new strategy practice. Gluck was concerned about being pigeonholed - the generalist ethos still held great sway at the firm - and he offered instead to act as head of a strategic steering committee. As Walter Kiechel pointed out in The Lords of Strategy, this made him, de facto, the head of the firm's strategy practice, but at McKinsey, where semantic subtlety was an art form, the compromise worked for everyone.
Peter Foy, who managed the London office from 1984 to 1991, said that McKinsey's fortunes changed after a June 1977 meeting of the firm's strategy experts at the Westchester Country Club. Twenty three of McKinsey's top strategy buffs sat around bouncing ideas off each other. And even in a gathering of that much intellect, Tokyo consultant Kenichi Ohmae stood out. At the end of the meeting, Foy offered the group a scorecard: "Lions 10, Christians 5, Ohmae 37." Years later, he sent Gluck a silver tray with that inscription. Although he was one of the firm's first champions of a strategy practice, Ohmae became famous for his later repudiation of the idea of formal corporate strategy - arguing a variant of Prussian general Helmuth von Moltke's dictum that all strategic plans become nullified on first contact with the enemy. By definition, you improvise in battle, and he who improvises best wins.
The meeting was an early step in the firm's belated response to the major competitive threat posed by BCG and Bain. Gluck soon put together an immodestly named group, the Superteam: a half-dozen consultants from different offices who were to midwife a strategy practice over the next decade. It was about time: One 1979 survey showed that 45 percent of the Fortune 500 were using some sort of BCG-style matrix analysis in their strategic planning.
One thing Gluck didn't want to do was merely mimic BCG. "People were saying, 'What we need, Fred, is not a lot of complicated stuff. We need a conceptual supernova, a direct response to BCG's matrix. And I rejected that notion. That was exactly what we didn't need. We want to help our clients solve the problems they have, not the problems we know how to solve. We don't want to be a solution in search of a problem, and that's what the four-box matrix was. That's what the experience curve was. Sometimes they worked. And sometimes they didn't.
Gluck continued: "I said we should forget about trying to do what BCG did. That we should tip our hat to them for what they accomplished, and then get on and do what we do best, which is to understand our clients' strategic problems and bring our extensive knowledge and experience to solving them." To that end, Gluck introduced practice bulletins, one-page summaries of what had been learned on a particular engagement or series of engagements with clients, so as to keep all consultants abreast of current work being done by the firm. Gluck intended to build an internal McKinsey knowledge network one piece of paper at a time.
And McKinsey approached strategy in a far more nuanced way than drawing a couple of graphs on a page. Gluck's 1978 paper, The Evolution of Strategic Management - the inaugural McKinsey Staff Paper - was something of a battle cry, marking the firm's intention of taking back lost market share. The paper's approach to strategy was the furthest thing imaginable from the General Survey Outline. The GSO was based on the premise that by following a checklist, managers could better understand their companies. But it was too inward looking. The strategic revolution was about looking outward, and adding exhaustive competitive analysis to the simple data gathering that was the core of the GSO.
Gluck's paper laid out four phases of a company's evolution in strategic decision making. The first, financial planning, was essentially old-school budgeting. The second, forecast-based planning, considered a far larger number of factors affecting the company. The third, externally oriented planning, called for in-depth analysis of a company's "business environment, the competitive situation, and competitive strategies." The fourth phase was full-fledged strategic management.
In a lengthy and colorful breakdown of the four phases, Walter Kiechel, author of The Lords of Strategy, credited McKinsey with bringing the discussion of strategy back around to organizational structure. The answer to a desire to be strategic, Gluck and his colleagues were arguing, was to organise one's company around that desire. And nobody understood organisation better than McKinsey. By the end of 1979, some 50 percent of the firm's billings came from finegrained strategy work, making it a bigger player in the realm than either BCG or Bain.
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Consulting has always been on the verge of disruption: Duff McDonald Interview with Contributing editor, Fortune & The New York Observer |
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McKinsey’s ability to bring in fact-based analytical inquiry to the problems of big businesses makes it relevant even today, Duff McDonald tells Ankita Rai
You have built a convincing case in the book on how, for better or for worse, McKinsey became the quintessential American business of the 20th century. What led to McKinsey’s success: naivety of American businesses in 1940s or McKinsey’s audacity?
I would say that it was the audacity of both. American companies had shown the audacity to build organisations of unprecedented scale and scope. Once they had done so, however, they were confronted with an equally unprecedented challenge, which was how to manage those organisations effectively. That’s where McKinsey came in. James O McKinsey, the founder of the firm, earned a reputation of speaking the truth as well as for an ability to bring in fact-based analytical inquiry to the problems of big business. That was valuable then and it is still valuable today.
Management consulting’s fundamental business model has not changed in more than 100 years. However, now there are many upstarts in the scene who have started questioning the incumbents. In fact Mckinsey itself initiated a series of business model innovations. Do you think business consulting is at the cusp of disruption?
Consulting has always been on the verge of disruption because its product is ideas, and people are always coming up with new ones. While that makes them quite adapatble, it is also a precarious position to be in because once an idea has been deemed passe, it is worthless.
I think one way that McKinsey has managed to distinguish itself over the years has been not much about the particular solutions it comes up with, but rather the way that it approaches problems. It have always been under threat but it has always figured out how to stay a step ahead.
Reprinted by permission of Simon & Schuster. Excerpted from The Firm:The Story of McKinsey and Its Secret Influence on American Business. Copyright 2013 Duff McDonald. All rights reserved.
