McKinsey: Dedicated to Digital

McKinsey is making broad-ranging investments in digital to ensure that it can continue to deliver the value that its clients have come to expect.

Management Consulting Reinvented

Management consultancies have made huge investments in digital to ensure that they can provide the same level of value here as their clients are accustomed to in other practice areas. However, clients are looking for different things in their digital consultants – as a recent Forbes article identifies, “clients demand faster and more tangible results for their consulting spend. As execution speed becomes a defining factor, clients will pay less for slide decks and frameworks and more for actual products and solutions [1].”

In “The Future of Consulting Through 2020,” Mark Cecere of Forrester highlights several key, digital-driven developments in the management consulting industry:

  • Software and data-based assets are automating projects or at least expediting duration of projects. Traditional strategy firms have been and will continue to make acquisitions in these areas.
  • Increasing demand for digital specialists, as opposed to post-MBA generalists.
  • Strategy and implementation work are merging.
  • Growth in gain-sharing contracts and subscription-generated revenue [2].

McKinsey’s Investment in Digital and its Impact on the Firm’s Operating Model

McKinsey, acting in line with Cecere’s research outlined above, has made sizable internal and external investments in digital. First, the firm has established a dedicated digital practice, which will typically work on projects in conjunction with more traditional consultants but will occasionally work on projects in isolation. McKinsey has also invested in its implementation practice to ensure that recommendations and technologies are rolled out effectively. Gone are the days of onsite project teams consisting purely of a group of post-MBAs – today’s case team is likely to also include experts in digital and experienced professionals to lead implementation. As part of this implementation, McKinsey is focused on helping its clients identify the internal talent needed for digital transformation, as shown in the exhibit below.

Exhibit 1: How McKinsey Helps Clients Manage Human Capital in Digital [3]

mckinsey-human-capital-management-in-digital

Further, the firm has established McKinsey Solutions, which “combines software, proprietary data, and extensive expertise in order to significantly improve an organization’s performance and health [4].” This group works closely with the firm’s New Ventures team, which includes an internal team of more than 800 analysts and data scientists working on projects spanning “Analytics, design thinking, mobile, social… [5]” This division is led by partners in the firm, many of whom spend half their time working with clients and the other half focused on this idea incubator.

Firm leadership has also looked outside of its own walls, making broad-ranging acquisitions of companies specializing in real-time data (QuantumBlack), design (LUNAR), and retail analytics (4tree) [6]. However, Forbes is quick to point out that nearly all consulting firms have made acquisitions in digital, so the differentiating factor for McKinsey will ultimately rely on the quality of its acquisitions and how well it can integrate their offerings with its existing model [1].

Unlike in the past, McKinsey now has the ability to provide its clients with software and analytic tools. These digital solutions have diversified the firm’s revenue stream away from purely consulting projects; however, cannibalization is not to be overlooked. Unlike in the firm’s traditional model, McKinsey Digital has tried to “de-risk” the client’s investment by tying fees to outcomes. Digital will also “coinvest, underwrite impact, and prioritize and sequence initiatives to provide rapid returns in order to fund the change [7].” This adjusted contract model is evidence of McKinsey’s focus on gaining market share in this space.

How Can McKinsey Win in Digital?

At a high-level, McKinsey needs to maintain its focus on establishing itself as a clear thought-leader in digital, while at a more tangible level it needs to deliver exceptional product in digital. The latter seems to pose a greater challenge for the firm, as it represents a greater shift from its historic operating model. Perhaps ironically, one of the biggest challenges McKinsey faces is parallel to that faced by many of its clients – how to best integrate new technologies into an existing operating model.

To achieve success, McKinsey needs to ensure that it’s hiring the best the market has to offer in digital. Despite all of its investment, digital innovation is not the first word that comes to mind when people hear McKinsey. The firm needs to clearly articulate how an opportunity in digital at McKinsey can compete with an opportunity at a premier tech firm. This differentiation will be key to successful hiring, but also, reshaping the firm’s brand image.

At present, McKinsey is casting a wide net in digital, which is a very expensive proposition. The firm will need to continually analyze areas where it may not make sense for it to compete with more specialized players. Can McKinsey be all things to all clients in digital? This remains to be seen, but seems to be the firm’s aspiration.

[Words: 793]

Sources:

[1] Falguni Desaid, “The Rise Of Digital Consultancies,” Forbes, March 2016, http://www.forbes.com/sites/falgunidesai/2016/03/23/the-rise-of-digital-consultancies, accessed 12 November 2016.

[2] Mark Cecere, “The Future Of Consulting Through 2020,” Forrester, February 2016, https://www.prodyna.ch/documents/10195/1650832/The+Future+Of+Consulting+Through+2020.pdf, accessed 12 November 2016.

[3] “Digital Organization & Capabilities,” McKinsey website, http://www.mckinsey.com/business-functions/digital-mckinsey/how-we-help-clients/digital-organization-and-capabilities, accessed 12 November 2016.

[4] “Solutions,” McKinsey website, http://www.mckinsey.com/solutions, accessed 12 November 2016.

[5] “New Ventures,” McKinsey website, http://www.mckinsey.com/about-us/who-we-are/new-ventures, accessed 12 November 2016.

[6] Stacey Higginbotham, “McKinsey Buys Formula One Data Analytics Firm QuantumBlack,” Fortune, December 2015, http://fortune.com/2015/12/14/mckinsey-buys-quantumblack, accessed 12 November 2016.

[7] “McKinsey Capability Building,” McKinsey website, http://www.mckinsey.com/business-functions/learning-programs-for-clients/overview/mckinsey-capability-building, accessed 12 November 2016.

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6 thoughts on “McKinsey: Dedicated to Digital

  1. Jasper, great analysis of the opportunities and challenges facing McKinsey. If you step outside the typical profitability framework, an interesting component to add to this discussion is the increased competition McKinsey and others will face a result of technology. Catalant Technologies, formerly HourlyNerd, is a terrific example of a disruptive player that could pose a threat to traditional consultancies over the coming decade. Catalant has bet big on providing consolidated consulting solutions – allowing companies to manage their consulting spend and see lower cost options to hiring a firm like McKinsey.

  2. Interesting views, thank you. I agree that one of the biggest challenges for consultancies moving digital is hiring the right talent. Acquisitions seem to be a popular approach for this in the industry, but they often fail as team members leave the acquired company before it is fully integrated. Another big challenge I see for the strategy consultancies is pure scale. Delivering technology applications requires not only developers, but also testers, maintenance and long-term support providers. To effectively scale, consultancies have to be able to provide these services as well at competitive price points. Necessary investments in infrastructure further complicate the matter.

  3. Great article, thanks!
    A lingering question I have is the follwong – Should Mckinsey be investing in this at all? I understand the role of some of McKinsey’s recent investments, such as its RTS practice or McKisney implementations (see: http://www.mckinsey.com/business-functions/mckinsey-recovery-and-transformation-services/how-we-help-clients and http://www.mckinsey.com/business-functions/mckinsey-implementation/how-we-help-clients, respectively), but digital consulting seems like a Niche field. Given the level of expertise needed, the talent required, and the operational challenges that come with staffing digital teams, it seems like clients could be better off with smaller consultants for this type of work than having to deal with McKinsey’s fees and overhead.

  4. Interesting perspective on digital challenges for consultancies.

    Generally I believe in the theory that strategy consulting firms thrived because of US government efforts in anti-competitive behaviours (e.g. 1890 Sherman Antitrust Act, the Federal Trade Commission Act and Clayton Act of 1914, and the Glass-Steagall Act of 1933).
    The consultancies served as independent sanitized legal vector to share information (good practices, industry data, etc.) without risking the ire of the government. This justified the existence of consultancies. This theory has been first exposed by Christopher McKenna.

    So I agree that consultancies are challenged. A spectrum of changes, including digital, founder owned monopolistic start-ups, stronger government, public data, economic intelligence among others are leaving consultancies less relevant.
    Echoing JDG, I am not sure McKinsey can really change course.

    References:
    The world’s newest profession : management consulting in the twentieth century McKenna, Christopher D., Cambridge ; New York : Cambridge University Press, 2006. (Cambridge studies in the emergence of global enterprise)
    https://blog.longreads.com/2013/10/23/the-making-of-mckinsey-a-brief-history-of-management/

  5. Jasper, thanks for illustrating the digital ambition and actions from McKinsey. It’s an interesting read! In order for consulting firms to stay competitive, they have to innovate and get closer to client and consumers. McKinsey was amongst the first firms to move toward the space of offering digital solutions to clients. Internally, McKinsey could drive more synergy between McKinsey Solutions and the existing industrial groups. Digitalization often times is one of the solutions that client is seeking for in order to address a broader business issue. More efforts and thoughts should be put into staffing to maximize its human capital. Externally, if McKinsey decided to further build expertise in digital, more investment in capability building is to be expected. Many fields in technology (like machine learning) is rapidly developing and transforming, it would be more cost-efficient for McKinsey to focus on specific fields and become the go-to-expert in that field.

  6. It’s fascinating to see McKinsey et al shift from their “strategy-only” approach to strategy and implementation. This, along with the contract models you mentioned, creates more alignment of incentives with the client. It encourages practical recommendations and long-term investment. Thank you for sharing.

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