McKinsey – A Lack of Structural Optimization

McKinsey is a highly established consultancy that is hampered by its regionally focused operating structure.

Company Overview: McKinsey & Company is one of the top management consulting firms in the world, with roughly 105 offices in more than 60 countries globally. Per Google Finance, “the company advises corporate enterprises, as well as government agencies, institutions, and foundations on a number of business practices.” (1)

 

As a management consultancy, McKinsey’s role is to provide business solutions to clients. With this in mind, it goes without saying that the firm’s greatest asset is the human capital it employs. Many of our classmates here at Harvard Business School are alums of McKinsey and are a testament to that value. With that said, I believe that McKinsey’s operating model is highly inefficient because it is actively detracting from the firm’s business model: the stated goal of providing business solutions to clients. At the heart of this operating inefficiency is the corporate structure that frames McKinsey’s daily activities.

 

McKinsey is very global in nature; a feature that the firm is quite proud of and certainly is a source of operational value. As mentioned above, there are over 100 offices in more than 60 countries globally. (2) However, the regional nature in which the teams are grouped can at times be a source of operational inefficiency. When a client comes to McKinsey with business, that client is assigned to a particular partner in the regionally relevant office. According to my interviews with some former McKinsey employees, part of the thinking behind this regionally driven structure is to allow for maximum in-person interaction. (3) It is far easier for a member of the New York office to travel over to Pittsburgh 4 days a week for 3 months than it would be for a member of the Dubai team. This arrangement allows McKinsey to uphold its treasured value of in-person consulting. (3) I agree that there is certainly value for in-person interaction. However, I believe that this structure creates a huge operational inefficiency.

 

By organizing the team structure at McKinsey regionally, the firm is depriving its clients from all of the top industry and/or functional specialists that are anchored to other regions and are thus not staffed with the client. For example, if I am a US-based McKinsey client seeking a new marketing strategy, I will more than likely work with the New York, Chicago or Boston office. The current operational structure deprives me as the client from all of the top marketing experts that McKinsey employs in Shanghai, Sao Paolo and Paris. Now with that said, further discussions with my former McKinsey classmates revealed that there are in fact designated industry experts at McKinsey, but they are rarely cross-regionally staffed if there are locals with similar expertise. (3) If I am a McKinsey client, I want the best thinking from every member of the firm with relevant subject matter expertise, regardless of region.

 

This structural flaw begs the question how in fact should the McKinsey teams be structured in order to maximize operational efficiency? In my opinion, the various teams should be structured upon functional and industry expertise. In this form, a media company for example would benefit from the wealth of expertise accumulated by all McKinsey consultants regardless of region. Now the obvious push-back to such a suggestion would be to point out that this could eliminate the benefit of regional and cultural expertise a Shanghai team could bring to a Chinese media company. This point is a valid one. The cultural familiarity generated by a regional team is tangible, which is why I believe the optimal structure would be an industry team fragmented regionally. For example, the media team would be fragmented across various regions around the globe. However, the commonality would be function, not region. This structure would allow for McKinsey to continue to benefit from its global culture, while simultaneously delivering the very best functional experts to each and every client regardless of regional origin. In summation, McKinsey is a global leader in the consulting space as it has continually delivered business solutions to clients. However, the regionally focused structure of the firm creates inefficiencies in the operational model. A structural reorganization along industry rather than regional lines would allow the firm to better provide clients access to the wealth of knowledge and talent brimming throughout McKinsey.

 

Sources:

(1) https://www.google.com/finance?q=McKinsey+%26+Company%2C+Inc.&ei=K7FoVuCzDuSRe_nVjfgM

(2) https://en.wikipedia.org/wiki/McKinsey_%26_Company

(3) Interview with a former employee of McKinsey & Co.

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6 thoughts on “McKinsey – A Lack of Structural Optimization

  1. Interesting idea but not necessary a novel one. Do you have experience with other consulting firms who use a similar model to what you proposed? Are they more or less successful?

    Last year, I worked with The Boston Consulting Firm’s healthcare practice on a Research & Development benchmarking project. Their industry experience was invaluable in gathering relevant and accurate data about our competitors…a point for your proposal. However, not every project requires industry expertise. I have also hired consultants to bring cross-industry best practices to my company’s operations, such system and organization design. Would restructuring the operating model eliminate their ability to win these type of projects?

  2. Interesting idea! I am surprised to see that McKinsey does not staff based on function or industry expertise. In other consulting firms, such as A.T. Kearney, we usually bring global function and industry experts to the project. But I guess the reason behind it is that McKinsey is large enough that on every single topic, McKinsey already has an expert regionally. I think if McKinsey has a project for an American company to enter into China, they will definitely staff across regions. Another complication is that staffing across regions will exacerbate the existing intense travelling, further contributing to the high attrition rate in the company.

  3. Fantastic article, Ressler. This is a real issue many consulting firms face as business becomes more global.

    However, in my experience at McKinsey, I have found that McKinsey does try to bring people with relevant experience to the project. Consultants are assessed on “using Firm resources” and “bringing the best of McKinsey” to every client.

    Personally, I have worked on a project for an European fund investing in East Africa with teammates from 3 African countries, 3 Americans, Finance experts from New York and 2 McKinsey knowledge centers in India. If the talent is within the Firm, the talent will be brought to the client, usually regardless of expense.

    How often is that true across all of McKinsey? Other consulting firms? And how long will that last?

    McKinsey is the least regional consulting shop

  4. I agree with Bankole. I thought McKinsey’s proposition is its emphasis on expertise, the firm claims to have a global P&L and that is why a lot of people travel leading to one of the worst work life balance. I believe the tradeoff between global expertise vs regional relationship depends on the industry and the project you are in. For retail projects in emerging markets, it’s probably not worth bringing in experts from North America, which is a very different market.

  5. Hey Matt!
    Interesting article! However, I agree with Bankole that big consulting firms ensure that their is enough functional expertise on all projects. For e.g. I use to work at BCG and we use to interact heavily with the regional/functional experts to ensure that we brought all the perspectives to the client. Moreover, many of these big consulting firms have a very deep knowledge management centre. For e.g. at BCG we had a global repository of all the cases as well as white papers on different industries/ regions. This repository was accessible to all BCG consultants and if we felt that a different global team had worked on a similar project or has expertise on our client’s problem, we always reached out to them to gather the required perspectives.
    Bipul

  6. Well, it looks like all the consultants chimed in on this one! I think this is a fascinating piece of a very successful company. Do you think that they would be better served changing their recruiting practice? (i.e. What if they recruited globally for the NYC office or the Dubai office and as such you had a diverse talent pool still based out of one office.) I guess this becomes equally dangerous when all of a sudden McKinsey and the client is favoring one geography more than another and therefore there are certain offices that aren’t utilized effectively. Thanks for writing about this.

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