Siddhanth Ganesan

ID: sganesan7

03/24/2015

Cultivating Capabilities to Innovate: Booz Allen and Hamilton

Until the late 1980s Booz Allen, a consulting firm, was essentially an affiliation of
individual partners fiefdoms. The president wanted to improve the way its products,
service offerings and innovation processes were distilled throughout the firm. However,
this was made difficult by decentralized nature of the firm and the culture of providing a
customized solution for each client. This was further exacerbated by the reward and
compensation structure, which did not provide incentives to share knowledge and
innovations across the partnership.
In 1987 a new partner compensation system was established where a percentage
bonus on base compensation was granted to employees depending on company success.
Base compensation would be dependent on seniority and contributions to the firm and
other factors. The compensation scheme better aligned partners incentives with the
strategic interests of the firm. The firm embarked on V2K which focused on cultivating
more expansive and enduring customer relationships with fewer customers,
multifunctional teams that would deliver the full range of the firms expertise and devise
cross-functional solutions and building a knowledge engine to better distill and deploy the
firms ideas. In designing the knowledge engine, three thrusts were championed. There
was a matrix-type reorganization, columns being functional practices and the rows being
industry practices where knowledge in each block was built through workshops, research
and staffing rotations. The firm launched Special Interest Groups to consolidate
knowledge, shape service offerings, and assemble experts to help partners sell these
services to clients. The Knowledge Online system was a warehousing and delivery system
which enabled consultants to access information on industries, companies, markets and
technologies that had been generated by previous BA&H teams. Leveraging knowledge
acquired by previous teams had three parts: Acquiring market structure and economics
information, applying models developed in previous engagements to the present clients
situation and benefiting from lessons learned about managing previous projects, avoid
making the same mistakes and utilizing knowledge of the best practices.
The mechanism that Booz Allen used to bring new service offerings to its clients was
described as an internal free market system where, like customers in a market place,
partners could choose among methods and potential service offerings thats were
developed in other similar client settings and introduce these to new and established
clients. However, partners tended to stick with product offerings that they had personal
experience with or as a close bystander. KOL was seen as a failure because instead of
looking for new services that might be offered to clients, KOL was used to obtain
background information, data on the industry, its competitors, relevant technology etc.
Some partners were reluctant to endorse a new service if it was different from their
accepted way of thinking. For instance the culture of perfectionism and conservatism
prevented Booz Allen from aggressively transferring and exploiting the concepts of
sourcing strategy and supply chain management which allowed its competitors,
particularly AT Kearney, to overtake them as leaders in the field.
An alternate mode of managing innovation in new service offerings that was being
piloted was for the senior partners to become more proactive in deciding which of the
potential new service offerings had highest potential for generating growth and champion

Siddhanth Ganesan

ID: sganesan7

03/24/2015

these new service offerings by pushing them into clients through campaign selling.
Despite initial enthusiasm the campaign selling was less successful than expected as few
clients bought into the new service offerings due to direct influence of the campaign.
Growing competition from lower tier competitors who bought into the standardized
approach was a growing concern for Booz Allen. The firm would require a non-static,
learning machine which continually captures innovations on the front line and transforms
them into new service offerings for the clients in order to improve and supplement the free
market model.