Professional Documents
Culture Documents
Prepared for
IBM CORPORATION
AMERICAS MARKET INTELLIGENCE
WHITE PLAINS, NY
Prepared by
Renaissance Group International, Inc.
495 Wheeler Road
Ashby, MA 01431
(978) 386-5858
June 5, 2001
TABLE OF CONTENTS
Page
UPDATE HISTORY
EXECUTIVE SUMMARY
BUSINESS STRATEGY
A.
11
PRODUCT STRATEGY
15
A.
B.
C.
D.
E.
F.
G.
H.
I.
16
17
18
18
19
31
32
33
34
MARKET STRATEGY
41
A.
B.
C.
41
46
ORGANIZATION STRUCTURE
50
A.
51
ALLIANCES/JOINT VENTURES/PARTNERSHIPS
65
A.
B.
65
66
Acquisitions
Alliances
FINANCIALS
68
A.
68
International Operations
71
INDUSTRY FOCUS
72
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73
75
76
76
77
77
78
78
79
79
79
80
81
82
82
84
85
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CHARTS
Page
47
50
53
54
68
69
70
CONSULTANTS
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(12/19/2001)
PAGE 1
Overview
McKinsey & Company prides itself on client confidentiality and, therefore, does not issue
press releases on a consistent basis. In turn, helping to promote itself, the company posts recent
articles, as well as the McKinsey Quarterly, which focus on current topical interests. As such, this
update provides summarizations as follows. These topics suggest the technology skills and
business practices strategic to the companys current interests.
A September 2001 article in The Financial Times says that, according to a report
published by the McKinsey Global Institute, New Delhi economists generally attribute
Indias poor performance to its high rate of illiteracy and abysmal infrastructure. The
article goes on to claim that the country easily could achieve double-digit annual
economic growth rates without tackling either of these problems. By taking three
steps -- removing distortions to the countrys property markets, privatizing
government assets, and clearing the thicket of barriers that stifle investment in
product development -- India could add 4 percentage points a year to its current
growth rate of 6%. The report says that as many as 90% of Indias land titles are
under legal dispute in one form or another. This uncertainty, which Indias courts say
would take more than a century to resolve at their current rate of progress, hinders
the incentive for land developers to invest in retail or housing. As a result, India has
the highest property prices in Asia relative to income. The report goes on to
recommend that Indias state governments replace the high 8% to 10% stamp duties
on title transfer with more equitable system of property tax. It also recommends
setting up a judicial agency, along the lines of Germanys Treuhand, which was set
up to resolve ownership disputes in the former east Germany, to cut through Indias
red tape.
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Revving up auto branding -- This article states that US car companies spend upward
of $40B a year on marketing, more than any other US industry. However, the
combined market share of the Big Three continues to slide. The authors go on to
question the reason for this discrepancy, placing the blame on a loss of brand
identity. As cars become more alike, car manufacturers often have made price the
main reason for choosing one brand over another. This is a classic trap of a
commoditizing industry, and it destroys healthy profit margins. McKinsey questions
what to do. Car companies must abandon their emphasis on rebates and incentives,
instead putting their marketing budgets behind the holistic management of every
consumer touch point, from product design through after-sales service.
Vaccines where theyre needed -- In this article, McKinsey finds that people in the
developing world often go without the vaccines they need. Vaccines for the diseases
that afflict it are too expensive for countries with annual health care spending of less
than $10 a head. Moreover, the development of vaccines for these diseases is
usually a risky and unprofitable enterprise for pharmaceuticals companies. In
conclusion, by assuming some of the risks borne by the makers of vaccines,
governments and international organizations could reduce the cost of bringing them
to market.
What happened to the bull market? -- McKinsey states that by the time NASDAQ
reached its peak in the recent bull market, many financial commentators had begun
to accept the idea that the traditional triumvirate of earnings growth, inflation, and
interest rates no longer drive stock market valuations. Instead, these commentators
suggested that new factors, such as structural changes in the economy, new rules of
economics, and the value of intangible assets and brands, now underpin stock
prices. In the article, McKinsey asks if they were right. Using a simple model based
on changes in earnings, inflation, and interest rates, the authors found that traditional
factors alone explain most of the medium, as well as long-term, movement of the
S&P index of 500 stocks. They uncovered scant evidence that the market has
changed the considerations it factors into stock prices.
Unbundling the unbundled -- This article states that monolithic and vertically
integrated companies once dominated the utility business. More recently, vertical
disaggregation, such as the breakup of the electricity provision business into
separate generation, transmission, and distribution businesses, sparked efficiency
improvements in utilities. McKinsey goes on to say that a second wave of
disaggregation is emerging. This one involves the horizontal unbundling of core
activities, including ownership, management, and service delivery within assets that
had been disaggregated vertically in the first wave. McKinsey finds that sooner or
later, traditional, capital-intensive service businesses such as utilities will have to
decide what they want to be -- asset owners, managers, or service providers. The
rewards for the best in each class could be large. Yet, for the "also-rans," the future
looks bleak.
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Brains abroad -- This article states that foreign-born workers now make up 20% of all
employees in the US information technology sector. This appears to be a boon for
the US as the global war for talent heats up, but also a hardship for poor countries,
from which many of these workers emigrated. The talent drain could have lasting
economic repercussions for the developing world, depriving it not only of the skills of
these workers but also of their influence on the productivity of others. It goes on to
say that for most countries, tackling the fundamental cause of the talent drain will
take years. This instills a requirement for a comprehensive economic reform to
replace the mixture of regulatory and fiscal incentives that emerging markets
generally have offered to lure emigrants back home. Meanwhile, a strategy that
encourages the participation of emigrants in the economic development of their home
countries can mitigate the effects on people seeking employment in the US.
Chips off a new block -- This article questions if the market could get any worse for
semiconductor makers. Market prices for their chips have fallen steadily, even as the
cost of building a new fabrication facility to produce increasingly complex products
has soared to $2B or more. The industry faces its biggest challenge yet in the form
of a new generation of plastic-based semiconductors. McKinsey states that
commodity chip makers, such as Hitachi, Rohm, and Toshiba, may suffer as the new
technology takes hold, and so will manufacturers of chip making equipment, such as
Applied Materials. Likely beneficiaries include plastics and chemical companies,
such as Dow and DuPont, as well as printer manufacturers such as Canon and
Hewlett-Packard.
Thailands chance for no-pain gain -- A McKinsey Global Institute study finds that
improved productivity in Thailand's key industries could lead to faster economic
growth. It also states that most of the needed policy reforms do not require additional
government spending or industry subsidies. The MGI research, analyzing and
benchmarking company- and industry-level productivity against global best practices,
focused on seven important sectors. As a remedy, removing regulatory barriers to
higher productivity, with a careful view to their economic and social implications, can
spur growth in the gross domestic product of Thailand. This would bring tremendous
benefits to its people. Should the opportunity be missed, the country, like Japan
since the early 1990s, might lapse into a prolonged period of stagnation.
Internet services: whos smiling now? -- McKinsey states that Internet traffic has been
slowing. A joint study by McKinsey and J. P. Morgan suggests that in the US, it will
grow at a compound annual rate of just 88% through 2005, far below the industry's
previous performance. The article goes on to say that this appears to be bad news
for the many new companies that gambled on reaching profitable scale on the back
of continued explosive growth in Internet traffic. Overall, the shifting mix and general
slowing of US Internet traffic will put traditional players, such as AT&T, IBM, and
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EDS, in the lead. This will leave upstarts that lack the scale and expertise to meet
the demand of large enterprises for help in managing streaming media and the
applications now moving onto the Internet.
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Update History
IBM Americas Market Intelligence has been preparing competitive vendor profiles with the
assistance of independent consulting companies since 1987. All reports follow the same
standard outline; however, the level of depth and topics covered vary depending on the markets
served by the profiled company. Market Intelligence, through an assigned point of contact, works
with the independent research company during the research phase of the report.
Market Intelligence intends that the report provide a general overview of the vendors
marketing and selling strategies, with sufficient detail to cover company policy and modes of
operation. Individuals requiring specific or related information are encouraged to contact Pat
Schuett-Luccarelli on 8-224-4064 or pdschue@us.ibm.com.
The following report on McKinsey & Company has been prepared by IBM Americas Market
Intelligence and by Renaissance Group International, Inc. (RGI) of 495 Wheeler Road, Ashby,
Massachusetts (978) 386-5858.
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Executive Summary
McKinsey & Company is a privately owned, management consulting firm traditionally serving
major companies and organizations that are typically leaders in their segments. While currently
serving the market leaders in virtually all industries, McKinsey also helps startups to rapidly
launch and grow their operations. The company focuses on issues of importance to senior
management that relate to key areas of strategy development, organizational design, technology
and operational improvements. McKinsey provides services to companies in most industrial
nations and emerging markets, reaching across a wide range of functional areas and industries.
The client base includes a variety of industries such as automotive, banking, chemicals,
consumer goods, high technology, media, telecommunications, pharmaceuticals, energy,
retailing, and insurance.
Founded in 1926 by James O. McKinsey, McKinsey & Company provided a new approach to
management consulting that differed from the management engineering practices at the time.
The company based its practices on two major ideas:
Professionalism -- defined as "putting the interests of clients first and maintaining the
knowledge and skills necessary to serve these clients."
McKinsey, which has grown to a $3.4B firm based on FY00 revenue, continues to
concentrate on solving challenging and complex problems that are of major concern for top
executives at businesses and institutions. The company claims to accept a project only if
McKinsey believes that opportunities for improvement exist and that the proposed solutions can
be implemented. The company draws on its worldwide consultant staff with expertise in several
industries and functional areas to develop practical answers based on analysis and experience.
McKinsey continues to strengthen its electronic commerce practice, called @McKinsey, helping
large corporate and startup clients to create sustainable, high growth e-businesses.
As a major management consulting firm, McKinsey & Company continues to exhibit many of
the same strengths that has made the firm one of the leaders in its field. In addition, the firm has
reacted to changing conditions to position itself for future growth, as follows:
Strong reputation
McKinsey continues to maintain its reputation as one of the top management
consulting firms specializing in strategic corporate issues. The McKinsey name is
recognized and respected among senior management worldwide. The company
points to repeat business as a measure of its success in serving clients and providing
these clients with measurable value several times the fees charged by the firm. In
addition, the company has an impressive network of alumni who have left McKinsey
and now serve as CEOs and top executives of major companies. McKinsey can
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draw on this network of alumni to secure future projects. The company's reputation
helps in the company's recruitment efforts for new talent.
Global firm
McKinsey promotes a "one-firm" image of the company, employing a worldwide staff
of consultants who promote the same professional values, mission, standard of client
service, and willingness to collaborate. The company, which believes one of its
greatest advantages is its scale and global experience, operates practices in 17
industries and across 9 functional areas. The company conducts projects through
teams that are grouped from the global base of consultants as opposed to
geographic location, assuring functional and industry expertise. The company
operates over 80 offices worldwide, expanding into new areas through its own
consultant activity as opposed to acquisitions of local consulting operations. This
policy serves to maintain the one-firm image.
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mentoring and coaching for its consultants and as a mechanism for consultants to
share their knowledge. McKinsey measures its associates on this criterion as an
important component in evaluating their performance for promotion to partner. To
further its staff's training in technology, professionals within the company's Business
Technology Offices must attend a one-week course developed and delivered in
conjunction with professors at MIT.
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To further its ability to win high-growth, startup clients, McKinsey has instituted a
strategy to accept equity stakes in these companies in exchange for services. While
the company claims to prefer cash payments, McKinsey realized that a segment of
these companies could not hire the firm under the previous fee structure. By
accepting equity stakes, the company has broadened its target market of clients.
Despite these strengths, McKinsey & Company demonstrates some weaknesses and faces
some risks, as follows:
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continues to expand its new hire process to include a greater variety of disciplines to
avoid going deeper into the MBA class. Half of the company's new consultants come
directly from industry or with graduate degrees other than MBAs. In addition, the
company now hires employees with established careers in specialized areas of
interest to McKinsey including electronic commerce, brand management, corporate
finance, information technology, law, and medicine. Over the last few years,
McKinsey has taken steps to make the firm's pay structure more competitive with
startup companies that can offer stock options. To attract and retain top IT talent,
McKinsey has taken minority stakes in more than 100 technology startups.
Furthermore, McKinsey has established an Investment Office as a mechanism for its
partners and associates to tap into the Internet and other startup money. The
Investment Office, which is run independently of the firm's consulting services,
invests pooled monies into venture capital funds, leveraged buyout funds, hedge
funds, and index funds managed by independent managers.
Employee turnover
McKinsey has seen its employee turnover rate drop from a high of 20 to 21% over
the last two years, to a low of under 12% at the current time. The firm attributes the
decreased turnover rate to the slowdown in the growth of dot.com businesses.
During the last few years, employees were more likely to leave the company more
quickly for greater equity positions in new dot.coms as well as e-commerce positions
at established vendors. The firm views 17% as the equilibrium figure, providing the
right balance of employees leaving either because they are not McKinsey material or
to pursue careers in startups or at clients.
Competitive market
The consulting market has become increasingly competitive as smaller, more
entrepreneurial companies continue to enter the management consulting market
serving niche segments. These new consulting firms provide e-business services as
well as broader strategy offerings. In addition, the Big Five accounting firms
continue to build their consulting divisions that have expanded into management and
technology consulting. Furthermore, technology consulting has increased with
systems vendors housing their own consulting divisions to meet customer
requirements in this area and firms offering online consulting services. In addition to
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competition for clients, the company competes against these services firms and
Internet businesses for talented employees.
McKinsey has established itself as a leading management consulting firm focused on serving
major Fortune 500 companies; education, financial and government institutions; medium-sized
businesses; and entrepreneurial companies. The firm continues to strengthen its electronic
commerce business to broaden its offerings in the Internet economy and to attract more
entrepreneurial clients. Across all of its practices, McKinsey's strategy remains to help clients
improve performance and profitability. The company continues to compete on the basis of its
staff of partners and consultants providing services across a range of industries and functional
areas, addressing issues concerning strategy, organization, operations and technology of
concern to top executives. To continue to succeed in its various markets, McKinsey must
persevere in its efforts to attract and retain top talent for the company and further develop its
image as a force in the Internet economy. In an effort to compete in the new Internet economy,
McKinsey has relaxed some of its more rigid policies, helping the company to win high-growth
clients.
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Business Strategy
McKinsey & Company is an international management consulting firm that advises
companies on strategic, operational, organizational, and technological issues. McKinsey's
mission is to help the companys "clients make distinctive, lasting, and substantial improvements
in their performance and to build a great firm that is able to attract, develop, excite, and retain
exceptional people." The firm serves senior management on issues critical to them and their
enterprises, seeking to exceed client expectations and provide high levels of "client impact." In
addition, McKinsey's strategy encompasses recruiting and retaining talent in sufficient numbers to
enable the company to serve its clients properly.
McKinsey defines a set of aspirations and guiding principles to direct its activities, as shown
in the chart below. McKinsey instills these principles in its employees with new consultants
observing the actions of more senior employees. The company's aspirations and guiding
principles remained essentially unchanged over the last year. The firm positions itself as a
values-driven organization, committed to "people over profit" and "impact over fees." In addition
the company operates as a meritocracy, offering a single worldwide standard for its people,
service, and professional integrity.
McKinsey & Company Guiding Principles
Aspirations
Guiding Principles
Create an unrivaled
environment for superior
talent
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Place client interests first, believing that over the long term, the company can only
prosper if it provides services of real value to clients;
Observe high ethical standards, treating clients with integrity and trust;
Accept only those assignments that the company is fully qualified to perform; and
In order to have an impact on clients, McKinsey believes its consultants must earn the trust of
clients and colleagues through an understanding of the following:
The company further believes that its people represent the primary factor in the firm's ability
to serve its clients successfully. The firm's strategy incorporates the attraction, development, and
retention of "excellent" people. McKinsey's strategy continues to rely on a "one-firm" concept,
employing a worldwide staff of consultants that supports the same professional values, mission,
standards of client service, and willingness to collaborate. In addition, consultants have a
common understanding of how to approach problem solving and share their ideas with
colleagues worldwide. The company relies on a collaborative team approach across all of its
offices, respecting local culture and organizations.
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Across all of its practices, the company's strategy is to help clients improve skills,
performance, and profitability. The company utilizes a top management focus stressing an
objective, collaborative approach while viewing problems from the integrated, cross-functional
point of view of chief executive officers and presidents. McKinsey consultants apply functional
and industry expertise to proven analytical frameworks for its projects, using a facts-based
approach to conduct analyses based on quantitative/logical foundations. The firm provides an
objective, third-party perspective to arrive at an actionable conclusion, recommending actionable
solutions that have a positive, lasting impact on the client's business.
Specifically, McKinsey consultants implement their business strategy through the following
steps:
Regulatory threats;
Increased competition;
Excess capacity; and
Cost pressures.
Across all of its services, the company believes it must add value for the client. The company
accomplishes this through the following techniques:
McKinsey has traditionally accepted assignments only if the company believes it will have
lasting positive impact for the client, defined as an increase in shareholder value. The company's
strategy is to assist clients in ways that surpass the client's expectation and to strive for higher
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levels of client impact. The company positions its work as supplementing the client's leadership,
not replacing it. McKinsey will accept a client if it meets the following conditions:
McKinsey permits client organizations to stop a study at any time during the process if the
client feels the project is not benefiting them. The company believes its strategy has been
successful, pointing to repeat business from clients looking to McKinsey to conduct new projects.
Over the last few years, the firm has tried to re-position itself to address the requirements of
the Internet economy. While McKinsey adheres to its aspiration and guiding principals, the firm's
Managing Director, Rajat Gupta, believes McKinsey has to adapt its approach to analysis,
focusing on using the Web. Mr. Gupta has stated that the firm is currently evolving its
approaches.
The company has recently strengthened its electronic commerce services, creating the
@McKinsey practice. Approximately 40% of McKinsey's current revenue is gained from ecommerce and technology-based business, either for existing clients such as insurance
companies and banks, or for startups. The company was involved with more than 1,000 ecommerce projects in 2000, a three-fold increase over 1999s level.
In addition, McKinsey has slowly implemented a "consulting-for-equity" structure in an
attempt to gain more high-growth companies as clients. As part of its current fee structure, the
firm will accept payment in the form of equity and cash, noting that the company claims to prefer
cash for its services. McKinsey has taken equity stakes in over 100 companies, ranging from
startups to spin-offs owned by larger firms. These equity arrangements may be liquidated over
time.
Along with revising the payment structure to include equity stakes, McKinsey has revised its
team structure to serve these companies. @McKinsey, the firm's e-commerce business,
supports these clients in a more flexible manner than McKinsey's traditional practices. The firm
has established Accelerators worldwide to house client projects for a limited time period. The
teams typically work with these clients from idea inception to actual implementation and ongoing
execution.
While McKinsey's reputation has been built on its relationships with some of the world's
largest companies, McKinsey has leveraged its traditional leadership role to become a player in
the new economy. The firm's e-commerce staff has operating experience in more than 100
industries, including professionals who have been instrumental in more than 150 startups.
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The McKinsey Global Institute represents an independent research group within McKinsey.
The Institute conducts original research and develops "substantive points of view" on economic
issues that the company views as critical for its clients. It continues to help businesses
understand the evolution of the global economy, improve their performance and competitiveness,
and provide a fact base for "sound" public policy-making at the national and international level.
Formed in 1990, the Institute is financed by internal McKinsey investment. The staff consists
largely of McKinsey's consultants plus leading university scholars from schools such as MIT,
Princeton, Harvard, and Mannheim University. The research conducted by the facility combines
economics and management disciplines, relying on the academic views of economics combined
with the real-world, management issues faced by the company's clients. The company believes
that its research results in views of the global economy that challenge conventional assumptions
of corporate leaders and public policy-makers. Broad research topics for the McKinsey Global
Institute include the following:
The relative health of the U.S. economy, assessing whether globalization can
continue in the face of cultural and political opposition;
A recent research project studied the lack of growth in the Japanese economy, looking at
structural barriers at the microeconomic level. The McKinsey Global Institute examined the
performance of four critical sectors in Japan -- retailing, food processing, residential construction,
and health care -- comparing their productivity with that of their U.S. and European counterparts.
The company also funds other research projects, which address large issues such as global
capital markets, forces at work in the international economy, and the future shape of corporations,
as follows:
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Strategy metrics.
McKinsey uses the results of its research to help position its services to clients. In many
cases, the consultants base their findings on a survey of several companies in the same industry
segment or those performing the same function. The company generalizes its findings to assist
other companies in similar segments or functional areas.
To promote its knowledge base internally, the companys consultants share their knowledge
by collaborating with other consultants. McKinsey extends its knowledge within the firm through
several mechanisms, including the following:
Office transfers;
McKinsey does not create profit centers in functional or industry practices to avoid any policy
that may discourage collaboration across specialties. This supports the concept of "one-firm"
across all offices and practices. The company believes its knowledge base becomes stronger
through collaboration between different types of expertise in functions and industries using a
team-based, integrative approach to problem solving. The company also assumes that it is in the
interactions of different types of knowledge that truly creative and valuable insights occur. In
addition, as client problems become more complex, the company believes that it must rely more
on an understanding of specific industries and functions, while still allowing consultants and
partners to remain generalists. McKinsey claims knowledge per se is of limited value until people
and consulting skills (not merely processes) combine to make it valuable.
McKinsey points to its commitment to building and sharing knowledge and continues to claim
the following:
McKinsey has written more articles for the Harvard Business Review than all the
other major management consulting firms combined;
Each year the McKinsey Quarterly publishes over 50 articles written by the firm's
consultants;
70% of McKinsey consultants have authored practice documents for the companys
internal database; and
McKinsey consulting teams request 4,800 copies of these documents each week.
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The McKinsey Quarterly is a print and online publication that distills current McKinsey
research and knowledge into focused articles. The firm offers free online access to McKinsey
Quarterly articles by registering at the McKinsey Quarterly website. Recent e-business related
articles address issues such as B2B marketplace success, e-tailing success, m-commerce,
financial services competition on the web, and building digital brands.
McKinsey disseminates information about firm strategy and management through the
company's Month by Month internal news magazine. The magazine, which the company targets
at its administrative and consulting staff, also includes news about McKinsey offices, practices,
and employees. The news magazine features articles about a variety of McKinsey projects
including projects that consultants conduct free of charge for educational, cultural, medical and
social organizations in their communities.
Twice a year, the company includes a collection of new partner profiles written by the firm's
new partners concerning challenges, opportunities, and development at the company. Overall,
the company hopes that the magazine supports its consultants as they progress through their
careers at the company.
The company's Silicon Valley Office (SVO) publishes E-Insights, a series of technology
business articles that examines the business of technology, ranging from e-commerce to e-health
to wireless communications. The reports cover a broad range of issues, such as transforming
website volume into e-business value, multi-channel marketing, the value of intellectual assets,
corporate alliances, the "war" for technical talent, and Internet pricing. The company e-mails
issues of E-Insights to top industry executives and influencers on a bimonthly basis. Recent
articles have addressed the value of B2B E-Commerce, the value of intellectual assets, shifting
power from sellers to buyers, and transforming website volume into e-business value.
The firm's marketing practice also produces a monthly magazine, called Solutions, which
provides information on marketing issues. The firm's Marketing Practice professionals are at the
core of McKinsey's marketing knowledge development. Using industry relationships, client
engagements, and ongoing research efforts, the firm identifies trends and explores issues that
are of greatest concern to businesses and business leaders. The firm then disseminates its
research and ideas through the publication of articles and participation in industry forums,
providing thought leadership to the profession and the business community at large. The
company also develops white papers providing in-depth information on current marketing issues.
@McKinsey produces two in-house publications -- Velocity I and Velocity II -- addressing
issues unique to online ventures and the companies that build and manage them. In Velocity I,
@McKinsey experts discuss fundamentals of successful business models in the e-commerce
arena. Velocity II focuses on issues relating to improving operational performance for ebusinesses. Recent articles provide information on retaining e-customers, building mobile
commerce (M-commerce), building online vertical marketplaces, and building a profitable ebusiness.
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Product Strategy
McKinsey offers services across a variety of functional and industry practices. The company
defines a practice as a network of people interested in developing McKinsey's capability in a
specific industry, or in a function or issue of particular interest across industries. McKinsey's
functional practices advance the state-of-the-art in addressing problems facing clients, covering
the following types of issues:
Improving efficiency;
Leading organizational change;
Strengthening sales force management;
Redesigning financial systems; and
Shaping new roles for the corporate center.
The firm currently operates more than 70 functional and industry practices that extends the
firm's knowledge and provides support to client service teams. The company's consultants use
an integrative perspective when working with its clients, typically using the following approaches
on a client project:
Looks across various functions when the focus of the work is in a specific functional
area, such as marketing, logistics, or product development;
Thinks across different time horizons including the immediate and longer-term
solutions.
Be able to keep senior managers involved and help make difficult tradeoffs and
decisions that cut across functions, regions, and planning horizons;
Provide a sense of organizational readiness for change and recognize how much and
what kind of capability and discipline will be needed; and
McKinsey's services combine "analysis with action," with the company quickly formulating
hypotheses and then testing the hypotheses through interviews, fact-finding studies, and
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economic and organizational modeling. The company also uses prototypes and field tests in
some projects.
Despite using standard procedures in some areas, such as sales force deployment, process
diagnosis and design, and capital productivity, the company does not believe that each problem
can be solved in the same way. The company looks across its consulting practices to determine
the appropriate method but avoids an attachment to any single philosophy due to the speed with
which strategy changes.
McKinsey builds capabilities within its client's organizations and transfers skills to the client in
all of its engagements. The company seeks to instill a higher set of performance standards at the
client. McKinsey sees its role of consultant as supplementing the role of managers at its clients,
with the clients making tradeoffs and the ultimate decisions resulting from McKinsey's work. In
addition, McKinsey relies on the client to provide the "best" people to work with McKinsey teams
to involve them in the process and draw on their expertise of the business.
McKinsey currently operates the following functional practices, described below:
Developing strategy;
Negotiating and structuring a deal;
Managing or restructuring an alliance; and
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Opportunity identification;
Strategic due diligence; and
Portfolio performance improvement.
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Macroeconomic analysis.
The Global New Economy practice positions itself as a source of strategic and functional
information, part of a global firm with an international knowledge network.
The practice has conducted over 700 growth engagements across all business sectors over
the last several years, offering experience across these areas. The company has established the
McKinsey Growth Alliance, a network of multiple clients grouped around a common objective
such as accelerating growth. In addition, the company holds internal business plan competitions
to identify and nurture new businesses.
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Research & Development (R&D) Strategy & Management -- The R&D Strategy &
Management group works with clients to maximize their R&D investment through
Sound Strategy and Smart Management, as follows:
E. Marketing
McKinsey's Marketing Practice draws on the firm's global resources to work with clients and
build substantial, profitable growth through "superior marketing." The firm claims to bring to each
business challenge a combination of highly experienced marketing professionals and state-of-theart knowledge, both linked to McKinsey's industry and client knowledge.
McKinsey positions its marketing practice as focusing on marketing issues that are of most
relevance to clients, including issues that reflect real-world concerns of business leaders.
McKinsey concentrates on the most critical marketing issues and keeps the firm's knowledgebuilding at the forefront of marketplace developments. This strategy reflects the scale of the
company's consulting engagements and its constant interaction with thought leaders from
business and academia. The company bases its efforts on a thorough understanding of
customers and their needs. The firm's knowledge and ongoing studies across the entire
spectrum of marketing issues are supplemented by the broad capabilities of professionals
dedicated to supporting clients through the design, execution, and interpretation of custom market
research in B2C and B2B environments.
By combining its knowledge development and experience, McKinsey can provide state-ofthe-art, road-tested strategies in a rapidly evolving marketing environment. The firm commits to
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providing its clients with a demonstrable impact on performance and reflects the way McKinsey
measures itself. The company believes that its proven ability to fulfill this commitment enhances
its leadership position.
McKinsey builds client solutions on a foundation of in-depth knowledge of both customer
needs and marketing approaches. For each engagement, McKinsey dedicates a professional
team that practices the firm's objective, fact-based approach to problem solving. Each team
draws on professional talent with a combination of industry-specific backgrounds and a creative
perspective built on expertise in the relevant marketing-related disciplines. McKinsey provides an
objective assessment of marketing investments and returns, so that resources are allocated to
accelerate growth and build shareholder value.
Over the past two years, McKinsey has completed over 500 projects across key marketing
and sales disciplines, spanning a wide range of industries including financial services, retailing,
telecommunications, electronics, and pharmaceuticals. The focus of these projects has been 50%
on offline issues, 25% on online issues, and 25% on multi-channel issues.
The McKinsey Marketing Practice engages in work that covers a wide variety of issues for a
broad range of companies. The firm organizes this practice into twelve key areas, up from eight
last year, to facilitate access to the company's growing and increasingly specialized expertise, as
follows:
The Business-to-Business Marketing group offers strategic support that helps clients extend
their capabilities, build business, and better serve their customers. McKinsey has developed a
comprehensive approach to B2B marketing that covers strategic issues (i.e., what to offer to
whom), marketing tactics (i.e., what mix of products, sales and channel choices, brands, and
prices will best deliver the desired value proposition), and organization choices (i.e., what are the
best roles for product groups, segment groups, geographic units, and functional specialists).
McKinsey helps clients by first understanding the functional process and relationship needs
of different kinds of customers. This objective can be met through qualitative interviews, a wide
array of survey techniques (e.g., cluster analysis, conjoint analysis), or modeling of customers'
economics. The firm claims experience from its involvement in more than 100 B2B engagements
in the last three years.
Once the customer base is segmented and appropriate strategies are in place, McKinsey
assists clients in developing comprehensive B2B marketing plans. Typically, this involves
reshaping the company's "go-to-market" approach so that the "best" possible channel delivers
each part of the intended value. The company moves from a "one-size-fits-all" sales force to an
approach in which it must build and manage multiple specialized channels (e.g., sales force,
telesales, Web-enabled sales, independent intermediaries). Best practice marketers then
synthesize the data and insights collected from all these customer touchpoints to continuously
refine decisions on branding, CRM, marketing spending, and pricing.
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E. 2 Branding
McKinsey's Branding specialty helps clients formulate strategies that communicate and
leverage the strength of brand identity. McKinsey's research has indicated that companies with
strong brands consistently earn two to five percentage points higher total returns to shareholders
than their industry counterparts. McKinsey sees the challenge of brand delivery becoming more
complicated as companies enter multi-channel environments where the brand must be able to
prevail across both online and offline businesses.
The Branding specialty works with companies to build shareholder value through their brands
by providing an end-to-end set of branding capabilities across brand strategy, brand architecture,
and brand delivery. McKinsey's approach builds on the firm's experience with business strategy,
identifying where a company can best invest its brand-building resources for profitable growth.
These perspectives help ensure focus on developing integrated, fact-based branding solutions
that are firmly grounded in the customer's needs and wants, as well as in the overall business or
corporate strategy.
Over the last few years, the company has added professionals with deep branding
experience and built knowledge in brand strategy, brand architecture, and brand delivery, as
follows:
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impact consistent with the core business or corporate priorities. McKinsey's brand
strategies focus on simultaneously creating distinctive benefits in the marketplace
and satisfying customers. McKinsey claims to have completed over 80 high-impact
brand strategy client engagements in the last few years.
Brand delivery -- McKinsey research shows that the key to building brand equity is
consistent delivery on three to five key touchpoints where the brand promise to the
customer is fulfilled. McKinsey's brand delivery work uses its Branding group,
supplemented by McKinsey organization and operations expertise, to identify the
most important customer touchpoints. The firm then defines the most effective
execution at each critical touchpoint and aligns the business system and the
organization to deliver the brand consistently.
In January 2001, McKinsey grew its branding practice through the acquisition of Envision, a
Chicago-based brand strategy firm, as described in the Alliances section of this report. Envision
is regarded for its empirical approach to deriving new consumer insights and brand strategies.
Envision executives combine sophisticated consumer market research and quantitative modeling
with creative insights to develop brand strategies that are grounded in a deep understanding of
consumer behaviors and attitudes. The firm serves blue-chip clients in a variety of sectors,
including financial services, retailing, packaged goods, media, and pharmaceuticals.
McKinsey now provides services in the following areas:
Building and maintaining powerful brands, and leveraging brands for growth;
Capturing the value of brands in M&A transactions, brand consolidation, and portfolio
optimization; and
Dynamic brand value management, including modeling key consumer and market
drivers for a deeper understanding of brand building.
McKinsey invests in building state-of-the-art knowledge through its branding practice. Recent
topics include maximizing shareholder value through brand leverage, new approaches for
accelerating the enhancement of brand equity, new strategies for branding in Internet/multichannel environments, and new approaches for building brand presence. The firm participates in
industry events pointing to its recent co-hosting of the Advertising Age "Brands and Brand
Management in the Next Century" industry summit and its lead role in P&G's FAST Summit
"Future of Advertising: Scenarios & Perspectives."
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e-CRM -- McKinsey works with B2C and B2B Internet companies to exploit insights
into online customer behavior patterns. The firm uses both its data and data from
McKinsey's exclusive partnership with Media Metrix to shape new high-impact
strategies for both site and customer management. McKinsey helps to ensure that
the right information is captured and used to improve targeting, offers, and proactive
management across the entire customer lifecycle, from customer attraction to
conversion to retention/revisit. The firm also helps companies to navigate and
prioritize online customer management technologies.
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Over the past five years, McKinsey has completed over 120 CRM assignments in such
industries as banking, insurance, retailing, airline, and telecommunications, demonstrating an
impact on customer acquisition, development, retention, and profitability. Recent topics include
best practices in e-CRM, key imperatives for multi-channel marketers, new approaches to
managing customer loyalty, the role of "infomediaries," business-to-business CRM, databases
and marketing in the banking industry, and the role of CRM for credit card providers.
E. 4 Customer Loyalty
Developed as a separate specialty within marketing over the last year, McKinsey's Customer
Loyalty specialty works with clients across a wide range of industries to develop new, significantly
higher-impact approaches for driving profitable growth through improved customer loyalty. The
company takes a broad view of loyalty focused on patterns of customer migration, defined as the
change in customer value over time. McKinsey research has shown that the broad determinants
of downward customer migration vary significantly across industries and from company to
company. Therefore, the company works with clients to understand the primary drivers of
downward migration in their customer base and to identify the customers offering the greatest
opportunity for value capture. McKinsey professionals then design an integrated approach to
target these sources of value. To maximize speed and impact, the firm uses pilots and a test-andlearn approach. McKinsey then helps clients roll out successful pilot approaches and helps them
build the capabilities to support those that require new skills.
McKinsey research shows that by pursuing a targeted approach integrating multiple levers,
companies can reduce the value lost to downward migration by 20 to 30%. This translates into
significantly improved top- and bottom-line growth. Over the past several years, the firm has
developed this approach with a broad set of clients to build proven knowledge and experience in
four areas:
Powerful relationship marketing -- The firm helps clients identify high-value downward
migrators; understand at a detailed level the reasons behind their migration; craft
direct, online, and face-to-face programs to influence their behavior; test and roll out
the highest-impact programs; and design and build the infrastructure and capabilities
to support relationship marketing over time.
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Targeted value proposition and delivery redesign -- McKinsey works with clients to
identify targeted changes that are likely to have measurable profit impact in excess of
the investment required.
McKinsey continually invests in new knowledge to push state-of-the art thinking in customer
loyalty. The firm recently completed research across 16 industries, defining key patterns of
customer migration and developing a Loyalty Profile of migration segments for each industry.
This research serves as the foundation of the proprietary tool the firm uses to quickly develop
high-impact Loyalty Architectures for clients. The firm also participates in industry events and
forums.
E. 5 e-Consumer Marketing
E. 6 E-Marketing
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McKinsey's e-marketing group helps consumer marketers create shareholder value through
existing advertising and direct marketing efforts and by building new consumer e-businesses.
McKinsey uses a holistic approach to e-marketing that reflects the company's e-commerce
experience and deep marketing knowledge. The firm's expertise comprises core e-marketing
disciplines, including business launch marketing plans, e-brand strategies, customer relationship
marketing, and multi-channel management. Consultants begin the e-marketing studies with a
deep grounding in customer needs and use their knowledge of marketing disciplines to develop
an e-marketing strategy that simultaneously delivers profitable growth and a distinctive customer
experience.
Over the past year, McKinsey has completed over 150 e-marketing-related studies. For the
future, the firm is further developing its knowledge of e-CRM, e-branding, e-pricing, multi-channel
management, and e-marketing organizations, in conjunction with professors from Harvard
Business School. McKinsey assists e-marketers in building and expanding their online
businesses through insights into consumer online behavior. This approach includes segmenting
and targeting consumers based on site visits, time spent on each site, and transactions to drive
profitability. The firm can develop custom analysis on any site to analyze changing consumer
behavior over time (e.g., time between repeat visits, sites cross-shopped in the same session),
determine what works and doesn't work, and use the information to improve site performance on
customer acquisition, conversion, and retention.
The Marketing Organization and Capability Building Practice helps clients develop
comprehensive, targeted, functional skill/capability building programs that deliver market leading
performance. The practice offers expertise in the following areas:
Identifying and evaluating the potential impact of the functional marketing skills each
client needs; and
By focusing on building marketing capabilities that link directly with the strategic and
economic objectives of the business, McKinsey helps clients create marketing organizations that
contribute directly to growth. McKinsey consultants typically begin with an analysis of the
company's strategic and profit goals that define the structure, skills, and style required for the new
organization. Rather than build generic capabilities, the firm builds "precision marketing
capabilities" designed to achieve targeted marketing and business goals. The programs can be
grouped into three broad service lines:
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E. 8 Marketing Research
The Marketing Research group generates qualitative and quantitative market research that
uncovers insights into consumer needs. The firm uses a variety of state-of-the-art research
techniques, working with a set of outside research vendors. The company then works with its
McKinsey colleagues and uses these insights to develop marketing strategy, branding, pricing,
and marketing spending effectiveness strategies for profitable growth. McKinsey combines its
experience in understanding business issues with a wide range of marketing research techniques
to provide actionable insights to address critical business issues.
McKinsey consultants evaluate and determine the best possible research approaches, which
include an in-depth qualitative observational study, focus groups, or a major quantitative conjoint
or choice study. The company also identifies which of its market research partners are best able
to conduct the research. The firm uses the output of this research to address the client's specific
business objectives, focusing the output on client goals and providing solutions to the client's
business challenges.
McKinsey directs its knowledge efforts in this area at examining new techniques in market
research as well as expanding its marketing knowledge. Through its alliances with top academic
institutions and leading industry organizations, McKinsey keeps up-to-date on state-of-the-art
market research techniques. The firm experiments with new ways to perform market research,
using more efficient techniques that provide superior results. Recently, the company focused on
understanding cross-channel shopping behavior for offline and online shoppers and dissecting
the strength of brands and brand architecture for both offline and online companies.
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E. 9 Marketing Spending
As a new area for the Marketing Practice, the Marketing Spending specialty strives to
maximize the effectiveness of client spending on marketing. The firm works with clients across a
range of industries to help them build brand presence more quickly and effectively. The
company develops effective marketing spending programs for both new and existing brands,
geographies, and channels, including the Internet. McKinsey positions client benefits from the
company's understanding of the broader strategic issues faced by the business unit, as well as its
experience in improving operations and organization performance.
McKinsey's approach usually entails working through four key steps to take advantage of the
broadening set of marketing options, while focusing the right amount of spending in the right
places, as follows:
First, professionals diagnose the bottlenecks that stand in the way of a brand's
growth, and then set appropriate objectives for improvement.
Second, McKinsey develops a list of vehicles and tactics that could be used to
address specific bottlenecks, drawing on proprietary database and research, as well
as the client's experience. Where needed, the firm will work with clients to test new
vehicles to assess effectiveness against specific objectives.
Third, McKinsey consultants work with clients to map out the dynamics surrounding
the brand, which is critical for selecting and sequencing marketing tactics. Depending
on the situation, the firm may do this qualitatively, or may create quantitative,
nonlinear models of the brand dynamics.
As a final step, McKinsey then determines the level of investment required to hit the
"sweet spot" of impact: above this level, returns diminish; below, the spending
doesn't register with consumers. McKinsey will also work in partnership with the
client's agency and other partners to develop the best solution for the brand.
McKinsey works with many clients to ensure that their organizations can continue to improve
their marketing spending effectiveness by developing and implementing brand/marketing
spending scorecards to provide actionable and timely feedback.
To expand its knowledge in this area, the company has examined strategies and tactics in a
range of industries, including packaged goods, financial services, telecommunications, and
retailing. The company currently is broadening its understanding of the effectiveness of individual
marketing vehicles in different brand situations. In addition, in collaboration with McKinsey's
ePerformance initiative within its e-Commerce practice, the firm is benchmarking the marketing
and operational effectiveness of 200 Internet businesses.
E. 10 Marketing Strategy
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The firm's new marketing strategy specialty within the Marketing Practice looks to accelerate
a client's profitable growth through innovative marketing strategies. In many cases, marketers are
shifting away from a traditional marketing approach that focuses solely on functional benefits
such as quality or reliability. By adding process and relationship benefits, marketing innovators
are providing multiple benefits that create superior value for customers.
McKinsey's approach begins with a thorough understanding of customer segments and their
needs across the three dimensions of customer benefits: functional, relationship, and process - a
concept that the company refers to as "Three-Dimensional Marketing." The firm analyzes
options for clients, assessing ease of implementation and profit impact to derive the strategy.
Drawing on its expertise in pricing, branding, and sales force management, consultants then
apply ideas using specific tactics and an understanding of technologies to create an
implementable marketing strategy.
During the past two years, McKinsey has been involved in over 300 marketing strategy
engagements across a wide variety of industries. This involvement provides the firm with unique
insights into customer needs. At the same time, its ongoing research partnerships with Media
Metrix and Yankelovich Partners provide additional insights into emerging needs and support
development of innovative customer-driven strategies for clients.
McKinsey continues to study how the three dimensions of customer needs are evolving in
different industries and the implications for branding, spending, and relationship marketing efforts.
At the same time, the firm applies this knowledge to developing e-business strategies in
business-to-business and business-to-consumer environments. Its three-dimensional approach
has been applied to a wide range of industries including financial services, retailing, consumer
packaged goods, telecommunications, automotive, pharmaceuticals, and high tech.
E. 11 Pricing
McKinsey's pricing work covers strategic and tactical pricing opportunities. The strategic
pricing approach begins with a strong belief that price needs to be based on value, not cost. The
firm examines how current and future supply, demand, and cost dynamics affect overall industry
price levels. The firm uses sophisticated research to segment markets. This enables McKinsey
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to determine what price level provides specific products with a price/benefit advantage versus the
competition, while maximizing profitability.
McKinsey's tactical pricing is based on detailed "by-product, by-customer analysis." The firm
uses a number of tools to determine the exact price, including base price, discounts, allowances,
and adjustments, to assign each customer transaction. The firm has developed proprietary tools
in this area, including:
Pocket Price Bands to assess the variability of transaction prices and the underlying
drivers, both internal and external, of that variability.
The firm has refined its strategic and tactical approaches for application in post-merger
situations that hold large pricing opportunities that McKinsey believes few companies fully utilize.
In addition, McKinsey is focused on e-pricing issues, developing pricing approaches and models
that begin to exploit the pricing power and flexibility of the Internet. The firm has recently
completed work on best approaches to solutions pricing (the bundling of products and services in
one solution for customers) and has developed a unique perspective and set of tools for pricing in
post-merger situations.
The Sales Force and Channel Management Practice creates value-driven sales strategies to
maximize clients' performance in two areas:
Sales Force Management, which covers strategic issues involved with direct
"owned" sales forces; and
With the proliferation of new selling channels, such as the Internet, and technology-enabled
selling, most companies now have the opportunity to transform their selling organizations to drive
incremental revenue, with a lower cost platform and improved customer service. McKinsey's
Sales and Channel Management group has been active for over 20 years in developing and
applying leading-edge approaches to a variety of sales challenges. The firm combines the
traditional McKinsey strength in business strategy and customer profitability with an
understanding of changing customer needs, technology evolution, innovative "go-to-market"
strategies, consultative versus transactional selling models, skill building, and compensation
issues.
As in other practices, McKinsey typically begins by identifying and understanding the needs
of key customer segments and combines this with the required cost-to-serve to ensure
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profitability. Consultants work with clients to develop and implement a "go-to-market" strategy
that is tailored for each segment. This frequently involves selecting the right mix of consultative
sales channels, Web-based selling, telesales, and other technology-enabled approaches. The
resulting go-to-market design is followed by a detailed understanding of the roles, skills,
organizational capabilities, and sales compensation changes required to successfully implement
the new design. Where appropriate, the firm involves consultative function-specific sales partners,
such as Huthwaite (sales training) and Coletti-Fiss (sales compensation), to ensure functional
excellence and a measurable impact. The firm also provides assistance with call center
performance, technology partner selection, and cross-channel integration.
McKinsey's knowledge efforts in this area are focused on new economy "go-to-market"
models, including methods for building integrated multi-channel capabilities, managing multiple
selling models in one organization, and maximizing the effectiveness of Web-assisted selling and
other transactional selling models. In these efforts, the firm collaborates heavily with its Service
Operations, Telecommunications, and High Tech industry practices. The company also focuses
on the transition issues that clients face as they migrate to the new-economy approach, including
channel conflict, skill building, and systems integration.
F. Operational Effectiveness
McKinsey defines Operational Effectiveness as the integrated set of actions required to
deliver value to customers at a capital level cost that produces desired returns, while building
operational capabilities needed to exploit future opportunities and sustain a competitive
advantage. McKinsey's Operational Effectiveness Practice helps clients shape operations,
offering support on such issues as:
Operations/executional diagnostics;
Operations strategy;
Total operational performance; and
Operational architecture and continuous improvement.
The firm organizes its practice around four primary areas, as follows:
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Sourcing strategy, which reviews the client's make/buy position and their
dependence on critical supplies and suppliers;
G. Organization
McKinsey believes that to succeed in the current market organizations must excel at
managing performance; stockpiling and exploiting talent; creating knowledge-based capabilities;
developing a new organization design; and providing integrative leadership. The company sees
an increased focus on corporate structure and management with increased globalization, industry
convergence, deregulation, and new technology trends.
McKinsey's European Organization Practice focuses on seven areas:
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Adaptive firms;
Organizing for global leadership;
Knowledge integration;
Strategies for talent;
Shaping culture;
Corporate renewal; and
Performance management.
War for Talent -- The "War for Talent" group helps clients build the strength of their
talent pool into a competitive advantage. The group helps companies understand
how to attract, develop, and retain high performers in the executive ranks, middle
managers, and technical professionals.
The Organization Practice also provides insight and assistance on the topics of change,
culture, corporate governance, knowledge management, leadership, and IT.
H. Strategy
McKinsey defines strategy as "an integrated set of actions that produce a sustainable
advantage over competitors." Strategic decisions are found in a variety of corporate actions,
such as the decision to enter or exit a market; efforts to develop or commercialize a new
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technology; plans to expand plant capacity; or the decision to extend an old brand or create a
new one.
The Strategy Practice develops "new, world-class thinking" packaged with tools and
frameworks that McKinsey teams can access to serve clients effectively. McKinsey strategy
consultants have developed effective approaches by working with knowledge gained from
academia, such as game theory and scenario planning, and adapting those tools to use with
clients. The company claims its team members do not simply follow best practices, but instead
proactively "shape" the industry through innovation. The company uses a "Killer Ideas" workshop
approach, which provides a way to brainstorm new ideas by reverse-engineering other recent
innovations. McKinsey uses recently developed work to apply complex adaptive systems theory
to business situations. This has led to the development of "fitness landscapes," a tool to help
managers manage multiple strategy options in rapidly changing industries.
In addition, the company employs Strategy Practice consultants to deliver the firm's
knowledge and expertise to teams and clients. McKinsey claims a "very large number" of its
engagements address strategy issues.
The Strategy Practice continues to develop knowledge to answer questions such as:
What are the ways in which strategy might be different in the new world of "dot.com"
startups?
How can the firm help its clients develop more creative strategies?
How can the firm help clients maximize their corporate portfolio options in valuecreating ways to grow without the ill effects of conglomerate discounting?
I. @McKinsey
McKinsey's e-commerce practice, @McKinsey, helps clients create sustainable, high-growth
e-businesses. Established in 1998, @McKinsey's mission is "to empower companies to be ecommerce innovators by combining leading-edge insights with deep, experience-based
knowledge of markets and industries."
McKinsey & Company has conducted Internet/e-commerce consulting and implementation
services for the past six years. @McKinsey consultants conducted more than 1,000 e-commerce
projects in 2000, tripling the number completed in 1999 and positioning the @McKinsey practice
as the fastest growing area within the firm. The @McKinsey practice has shed the firm's
"deliberate pace" image that, at times, ran counter to the faster pace expected by high tech firms.
The company positions the practice as providing a fluid and flexible environment in which to work.
@McKinsey clients are established and emerging-growth companies developing Internet
initiatives. The practice focuses on serving the following industries:
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Automotive;
Electronics;
Financial Services;
Healthcare;
Media;
Retail; and
Telecommunications.
McKinsey partners with clients to maximize the value realized from the Internet and to create
new, high-growth e-ventures. The company positions the @McKinsey practice as helping clients
in the following areas:
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Capturing and using information to drive continuous improvement on the front end
and back end; and
Developing new business ideas that build on existing skills, assets, and relationships.
McKinsey consultants explore the implications of e-commerce by conducting proprietary ecommerce research and completing extensive e-commerce client work across a range of
industries and markets. McKinsey positions the company, due to extensive research, with a
unique perspective on Internet business opportunities.
Over the last year, consultants for @McKinsey have helped clients launch e-businesses,
improve performance, and develop solid business strategies for the future. @McKinsey provides
services in the following areas, described below:
Developing customer relationships, providing eCRM knowledge and tools that can
help clients develop a strategy for managing online customer relationships; and
Building the right partnerships, helping to identify technology issues and partner
needs, offering advice on deal structure, and helping facilitate negotiations with the
eAlliance service.
@McKinsey can also help businesses create financing strategies and technology solutions,
select and manage vendors, and organize for the future.
I. 1 e-Business Accelerators
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Launch -- The company designs, builds, tests, and launches the enterprise. Critical
tasks include proving the business concept, raising capital, devising and
implementing a launch plan, and recruiting for and building the organization.
Growth -- The venture refines its business and marketing strategy and strengthens its
ability to support the needs of existing customers. Critical tasks include upgrading the
business plan, refining the product, selecting technology partners, and measuring ebusiness performance.
Expansion -- The e-business forges strategic alliances for further growth and
expands its reach. Critical tasks include leadership training, identifying potential
mergers and acquisitions, integrating operations, and developing global strategies.
Amsterdam;
Atlanta;
Greater China;
London;
Miami;
Munich; and
Silicon Valley.
Accelerators offer focused, rapid problem solving at critical junctures and can complete
engagements in as few as two weeks. Accelerators @McKinsey offer services, as follows:
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Intensive business-building (six to twelve months) -- For ventures that need to move
at maximum speed, Accelerators @McKinsey can supply a larger team to provide
short-term management ranging from business development to customer care. The
Accelerators also provide day-to-day execution of marketing plan development and
product launch.
Targeted projects (one to six months) -- The Accelerator teams provide in-depth
analytical services that enable startups to pinpoint their market position,
opportunities, and vulnerabilities. The firm can also screen merger or acquisition
candidates and help startups shape a newly combined organization.
Burst services (two days to two months) -- Accelerator consultants and specialists
provide the client's organization with "rapid-fire" market data, valuations, economic
analyses, and other short-term, targeted analyses required for fast decisions and
action. The firm believes few startups have time for lengthy analysis and drawn-out
market studies.
I. 2 ePerformance
McKinsey's ePerformance Practice was initiated in 1999 to measure, diagnose, and improve
e-business performance. It offers a constantly updated index of data from a diverse group of
consumer-focused e-businesses worldwide. ePerformance lets businesses compare their
website performance against an aggregate index of their peers within an industry segment as well
as across a variety of industries. The result demonstrates how one company measures up
against its competitors as a whole, allowing that company to track its operational performance
over time.
McKinseys ePerformance Practice is positioned as providing a better operational
measurement approach, as follows:
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The company produces an ePerformance scoreboard that provides insights into ebusinesses on operational performance by revealing critical performance drivers and comparing
performance to competitors. The company compiles individual company scores on nine
performance indicators and suggests high-potential improvement areas, which enables ebusinesses to identify appropriate actions for improvement. Over time, the company can
measure the impact of operational improvements.
@McKinseys ePerformance team works closely with participants to collect accurate data on
key performance measures, such as the cost associated with generating site visits and the sites
customer retention rate. The team members interview participants and gather data on recent
financials and website traffic. The team then calculates the metrics and enters the results into a
database designed to measure and compare operational performance of individual companies
against their peers in a particular industry segment. Participants receive a detailed report that
includes a final consolidated score, as well as a feedback form that presents specific steps for
improving their performance.
I. 3 eConsumer
McKinsey's eConsumer service helps companies with B2C sites explore ways to assess
consumer behavior. Based on data from Media Metrix, McKinsey research has identified six
distinct behavioral segments among active online consumers. The firm has found that the
differences between segments are significant enough that marketers risk losing ground if they
attempt to appeal to everyone. Winning a loyal consumer base in one segment is likely to be
more profitable than trying to serve all the segments at once.
The segments are identified as follows:
Simplifiers, representing 29% of active users, using the Internet to make their lives
easier and accounting for over 50% of transactions;
Surfers, representing 8% of active users, but accounting for 32% of total online time;
Bargainers, representing 8% of active users, seeking the best buys on the Internet;
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Sportsters, going online to get information, typically in the areas of sports and
entertainment.
Surfers constantly troll the Internet in search of variety and new ideas, while simplifiers focus
their Internet usage on a small number of sites that they have determined can save them time
and make their lives easier.
I. 4 eCRM
McKinsey's eCRM services help businesses convert their visitors into repeat buyers and keep
them interested. The firm provides knowledge and tools that companies use to develop a clear
approach and strategy for managing their customers, not only when they first arrive at the site but
throughout their entire lifecycle.
McKinsey's eCRM practice helps businesses to:
I. 5 eAlliances
@McKinsey's eAlliance practice helps clients identify technology issues and partner needs,
offers advice on deal structure, and helps facilitate negotiations. @McKinsey provides assistance
with four key tasks of structuring an eAlliance, as follows:
Market Strategy
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Large enterprises, with McKinsey claiming to have worked for over one-half of the
Fortune 500 companies;
Small and medium-sized businesses including family-owned firms and high tech
ventures;
Financial institutions;
State-owned enterprises;
Historically, most of McKinsey's clients have been large, successful companies, but the firm
now serves many mid-sized and emerging market companies, as well as family-owned
enterprises and startups. Approximately 40% of the firm's projects now contain an e-business
component. While most of the firm's work is in the private sector, McKinsey also advises public
sector organizations. In addition, McKinsey helps philanthropic, civic, and cultural organizations
on a pro bono basis. Past charitable work has included clients such as the American Red Cross,
the Pittsburgh Police Force, the San Francisco Zoo, and the City of Stamford.
At times, McKinsey offers introductory engagements or projects to get to know a new client.
In these endeavors, the firm tries to make a difference in the constrained setting of the project.
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These engagements last four to six weeks and lead to a recommendation to move quickly in or
out of a business area. The firm believes it makes a difference when it works closely with clients
over a longer period of time on a range of consulting assignments. A single consulting
assignment may continue through various phases over time, addressing issues and building the
client's capability to deal with those issues. McKinsey describes this as a "more patient approach"
on both the firm and the client's part.
As McKinsey has increased its electronic commerce practice, the firm has expanded its
customer base to include a greater proportion of high technology and startup businesses.
McKinsey's e-commerce activities have more than tripled in the last two years, with over 1,000
engagements in 2000. Clients of McKinsey's Silicon Valley Office, which focuses on technology
issues, include the following types of organizations:
Traditionally, the company has followed a general policy of not revealing a client's name.
McKinsey also urges its clients not to reveal McKinseys involvement publicly to facilitate either
the companys or the clients withdrawal from a project, if necessary. In some instances, the
company would only acknowledge it had worked for a client if that client first revealed McKinsey
involvement publicly and several years had passed. McKinsey believes this maintains the
companys professionalism and supports the company's conviction that it supplements, as
opposed to replaces, the client's leadership. The company has relaxed this policy somewhat in its
e-commerce operation, where clients and potential employees want to know about a firm's
accomplishments.
Examples of recently publicized McKinsey projects include the following:
Roche Holding AG hired McKinsey & Company to conduct a review of its operations
including corporate structure, operations and staffing levels in an effort to boost
margins.
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While McKinsey will not typically reveal a client's name, the firm publishes information on the
types of projects completed by the firm in an effort to market its services. Within the firm's
marketing practice, McKinsey has completed the following projects:
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eMarketing -- McKinsey worked with a major retail client to make better use of offline
assets that could promote its online operation. The URL and action messages were
promoted through store counters, shopping bags, call center hold messages,
television, and direct mail. By spending less than $1M, the company gained over one
billion impressions. Aggressive conversion programs were implemented to
encourage visitors to buy through discounts, free shipping, and sweepstakes. With
these changes, the site attracted more visitors, and conversion ratios increased by
over 50%.
Marketing Spending -- McKinsey worked with a leading food and beverage marketer
to enhance the returns on its marketing spending against its key brand. The
approach involved reducing spending and altering the marketing mix across three
regional markets that historically had been treated homogeneously. A reduction and
reallocation of the marketing budget in each market yielded a 33% increase in
projected value versus the historical approach.
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McKinsey will accept a project if the client's problem or opportunity is "big enough to justify
and demand senior management's attention." The company asserts that clients typically look to
hire McKinsey when they want to build new management skills and develop a high-performing
organization. The client's top management must be committed to make change happen, be open
to new and broader perspectives, agree to take action, and possess the discipline to see that
changes are implemented.
While the company develops long-term relationships with a client, McKinsey does not
typically engage in continuously billable projects. The company sees repeat business from many
clients but does not work on retainer. The company negotiates each engagement separately with
a different set of issues and objectives. McKinsey claims that active relationships with many
clients extend back several years in most countries. Previous work with a client provides
McKinsey with an advantage of knowing the company's business, its top managers, and its
markets, which allow the company to build familiarity, trust, and commitment. The company
maintains its professional values with these clients, accepting assignments only when McKinsey
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can make a significant impact while maintaining its independence and objectivity. The company
will decline or withdraw from an assignment if it does not meet these conditions.
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McKinsey staff on the analytical work. This provides the client with a commitment to the team's
recommendations and develops the client's skills and knowledge.
Teams meet regularly with the client to discuss progress and gain input from senior
executives as issues arise. In addition, the company sees these reviews as a mechanism for
ensuring that consultants clarify and focus their thinking on an issue by assessing the implications
for the client at regular intervals.
C. Competition
McKinsey & Company continues to compete against other management consulting firms
concentrating in strategic issues focused at top management. These competitors include
companies such as the Accenture, Boston Consulting Group (BCG), Bain & Company, Mercer
Consulting Group, and Booz, Allen & Hamilton. In addition, the company competes with other
management consulting firms that specialize in a particular function, such as marketing or
information technology. These companies include Computer Sciences Corporation (CSC), EDS
and Cap Gemini. McKinsey also faces the Big Five accounting firms that have expanded their
consulting practices, including PricewaterhouseCoopers, Deloitte & Touche, Arthur Andersen,
KPMG and Ernst & Young. In addition, McKinsey competes against technology consulting
companies and solutions integration companies specializing in e-business solutions, such as
Cambridge Technology Partners, Sapient, and TenFold. The company also encounters firms
providing online consulting that offer agility, timeliness, efficiency, and responsiveness.
McKinsey sees increased competition from fast-growing e-business consultancies that are
winning clients by bundling strategic issues with skills such as Web design and Internet
architecture building. The company has placed an increased emphasis on its e-business over the
last few years and expects to gain a reputation among the dot.com companies. The e-business
consultancies, such as Viant and Zefer, typically conduct projects in the range of $1M to $3M,
compared to a traditional McKinsey project that could reach $10M to $20M. These econsultancies have high-growth clients with between an estimated 25 to 50% paying their fees
with equity. Historically, 90% of McKinsey's business has been with large corporations. The
company now claims that 40% of its revenue has an e-business component.
The following chart shows rankings for the largest management consulting firms. Andersen
Consulting/Accenture continues to hold the top position. McKinsey & Company continues to hold
the seventh place position among these companies in terms of total revenue, excluding revenue
th
associated with outsourcing. Rajat Gupta, the firm's Managing Director, placed 10 in Consulting
Magazine's list of the Top 25 Consultants -- The Professions Most Influential People in the June
2000 issue.
Firm
Main Office
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1
2
3
4
5
6
7
8
9
10
Chicago, IL
New York, NY
Cleveland, OH
New York, NY
El Segundo, CA
New York, NY
New York, NY
Paris, France
New York, NY
Chicago, IL
McKinsey also competes against systems vendors, including IBM, Hewlett-Packard, and
Compaq Computer, that have expanded their operations into consulting and outsourcing. While
the management consulting and technology firms, as well as the Big Five, offer vendor
independence when recommending solutions, system vendors are sometimes viewed as
presenting a bias toward their own hardware. McKinsey's lack of formally announced
relationships with software and hardware vendors further promotes the company's impartiality.
While the firm's independence from its clients has stood to differentiate McKinsey in the past, the
company announced in 1999 that it would accept equity stakes in a number of its clients.
McKinsey differentiates the company by emphasizing its impact on customers, taking on
clients only if the firm can show lasting, positive change for the client, while delivering value
several times higher than the fees McKinsey charges. In addition, the company emphasizes its
top management perspective by presenting an integrated view of the problem and solution.
While the company also emphasizes its global, one-firm nature, McKinsey typically competes
against other major vendors with the same types of global resources available. Like other
management strategy firms, McKinsey stresses functional and industry expertise. At the same
time, it maintains a generalist perspective and ability to integrate knowledge across functions and
industries. The company also believes that the training and development of its consultants
provide a significant differentiator.
Over the last few years, McKinsey has seen increased competition among management
consulting firms, as well as Internet firms, for IT consultant staff. Established consulting firms
such as McKinsey, CSC, EDS, Andersen Consulting, KPMG, PricewaterhouseCoopers, Deloitte,
and Ernst &Young have seen employees leave for Internet service companies. While this trend
has slowed due to the overall slowdown in dot.com businesses, the firms still compete for top
talent.
To attract and retain top IT talent, McKinsey has taken minority stakes in more than 100
technology startups. The firm keeps the shares in a blind trust so partners typically do not know if
the company holds shares in a client. McKinsey has established an Investment Office, run
independently of the firm's consulting services, to make investments of pooled monies into
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various funds managed by independent managers. The investments represent both pension
funds and after-tax investments by firm members. In this manner, McKinsey staff can gain
access to the "Internet fortunes."
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Organization Structure
McKinsey & Company incorporated in the 1950s but continues to operate as a partnership,
with the partners owning all outstanding shares of the company. The company has not taken
itself public, following instead the procedure set up by Marvin Bower, a past company leader, of
selling shares back to the firm at book value. McKinsey expects each of its consultants to think
and act like an owner of the firm. McKinsey's Managing Director, Rajat Gupta, has no plans to
take the company public, emphasizing his belief that partnerships represent the best professional
services model. The company believes it can compete with a balance between its traditional
business and new economy accounts.
The company is organized formally around geographic locations, with various functional and
industry-specific practices operating across these offices. Each practice has a primary objective
of helping the company's project teams increase their ability to serve clients. Directors and
principals manage these operations.
While organized geographically, the company does not set up profit and loss centers in these
offices. Reinforcing its "one-firm" concept, the company forms teams for projects from various
offices depending upon the particular expertise and skill set required.
Rajat Gupta continues as the Managing Director of McKinsey, having been elected for threeyear terms in 1994, 1997 and 2000. Mr. Gupta will step down in 2003, due to a three-term limit
for a managing director that he initiated during his first term. To bolster the firm's
responsiveness, in 1999 McKinsey established what it calls the Office of the Managing Director, a
group of about six senior partners who help Mr. Gupta champion issues surrounding both people
development and knowledge building. The new office is focused on speeding up the
consultancy's decision-making. Only a handful of practices report directly to the office, including
the @McKinsey business. The chart below displays McKinseys organizational structure.
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Rajat Gupta
Managing Director
Office of the
Managing Director
Donna Rosenwasser
CFO
Stuart Flack
Director
Communications
Anil Kumar
Director
@McKinsey
Jerome Vascellaro
COO
McKinsey has seen a reversal of a trend from last year during which time the company faced
an increase in the number of professionals leaving the company.
Physical centers where startups can work with experienced e-commerce consultants,
Web designers, and technical experts under one roof;
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The expertise of McKinseys global consulting practice, along with an extensive thirdparty network of "best-in-class" service providers and technology vendors; and
Access to McKinsey's global network of Fortune 500 clients, e-business clients, and
alumni.
In addition to providing the temporary office space and advisory services of traditional
incubators, McKinsey's Accelerators also bring e-businesses into full partnership with
@McKinseys experienced e-commerce professionals worldwide. The stand-alone Accelerators
@McKinsey are now located in:
Amsterdam -- The Accelerator @McKinsey in Amsterdam helps clients build their ecommerce businesses in specially designed labs, working with @McKinsey
consultants and external ePartners. Each client works in a dedicated plug-and-play
environment designed to ensure maximum flexibility and scalability. The Accelerator
location in Amsterdam helps to promote the interaction between @McKinsey
consultants, other resident businesses, and vendors. The Amsterdam Accelerator will
also organize and host or support events where the Internet community can discuss
the Internet, e-commerce and related topics.
Atlanta -- The Atlanta Accelerator, which serves the region's e-commerce market
shapers, can accommodate four to six clients. The Atlanta Accelerator has helped
dozens of clients develop strategies, scan opportunities, and build their businesses.
Greater China -- The Greater China Accelerator is positioned to help startups and
industry leaders in Hong Kong, Taiwan, and Mainland China. Many U.S. and
European dot.coms are seeking to establish a presence in Asia, and local
conglomerates in Hong Kong, high tech firms in Taiwan, and state-owned enterprises
in China are also aggressively pursuing e-commerce strategies. The Greater China
Accelerator brings together more than 50 business and technical consultants with
industry and e-commerce experience in financial services, telecommunications,
electronics, media, consumer products, and retail. The Accelerator has conducted
engagements for clients in both B2B and B2C e-commerce.
London -- The London Accelerator works with U.K.-based startups, U.S. dot.coms
expanding into Europe, and incumbent clients moving online. McKinsey's London
Accelerator staffs its projects with e-commerce specialists, industry sector experts,
and consultants from the firm's London Business Technology Office.
Miami -- The Miami Accelerator serves Latin America's next generation of ecommerce market leaders. The Miami Accelerator has helped clients develop
strategies, scan opportunities, and build their businesses. The facility has served ebusiness startups in a variety of industries, including a number in the healthcare
arena. In the first six months of the practice, the firm assisted more than 20
companies in such fields as the Internet, pharmaceutical retailing,
telecommunications, medical product manufacturing, and customer service.
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Silicon Valley -- Located in Redwood City, California, the Silicon Valley Accelerator
serves e-commerce startups and divisions of incumbent companies, using broad
industry and technical expertise to accelerate and incubate ventures, enhance the
profitability of existing operations, or expand the geographic reach of proven ebusiness concepts. The Silicon Valley Accelerator supports focused, rapid problem
solving at critical junctures through projects that can be completed in as little as two
weeks.
The company also operates Business Technology Offices (BTOs), defined as virtual offices
operating as a single global office. McKinsey's BTO addresses the prime concerns of CEOs,
CIOs, and other senior managers at leading corporations and entrepreneurial ventures, linking IT
investments to strategic business priorities. Launched in 1997, the BTO is McKinsey's first
capability-based, global office.
Consultants in McKinsey's Business Technology Office (BTO) help senior managers solve
complex business and technology challenges facing their organizations. McKinsey consultants
advance industry thinking on top management IT issues and are members of an entrepreneurial
group building an expanded McKinsey capability. McKinsey BTO consultants develop an
understanding of technology's impact on business and bring deep technical competence to
solving strategic business problems. In addition, BTO consultants evaluate underlying
technologies and are directly involved in initiatives in such areas as e-commerce, IT
transformation, and IT architecture.
A. 1. Headcount Structure
6,000
4,000
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Total Employment
10,000
Number of Consultants
Cleveland/Pittsburgh/Detroit Complex
Southeastern Complex (Atlanta, Charlotte, Miami)
Stamford, CT Office
New Jersey Office
185
185
80
140
A. 2. Hiring Practices
McKinsey offers a well-defined development path for its professionals that starts from its PreAssociates position, progresses to the Associate or Specialist level, is followed by the
Engagement Manager, the newly created position of Associate Partner, and ends at the Partner
level.
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Associate -- Associates typically join McKinsey with an advanced (or second) degree
in a wide range of fields and/or several years of work experience. Initially, associates
generally work across a broad range of industries and functional areas of business.
An associate can choose to develop an expertise in an industry or functional area, or
remain a generalist. Through VOX, described below, the company now provides its
associates with greater transparency, choice, and flexibility in their assignments.
Associates are full members of each engagement team, expected to identify issues,
develop hypotheses, structure and conduct analyses, synthesize recommendations,
and present results to client leaders. Associates advance to the Engagement
Manager level after achieving mastery of consulting and leadership skills.
For its associate positions, the company looks for individuals with "outstanding
academic credentials and a strong record of extracurricular activity, professional
accomplishment, and leadership." Consultants must possess excellent problem
solving and managerial skills and must be able to make significant contributions in a
relatively short period. McKinsey believes successful consultants must "genuinely
care" about their clients and "truly enjoy helping others better understand and
improve their performance." In addition, consultants must be able to take initiative
and work with people at all levels of an organization, from client team members to
chief executives. For associates in the Business Technology Office, the firm prefers
an MBA or advanced degree in computer science or engineering.
Specialist -- Specialists typically have an advanced degree and several years of work
experience, possessing industry knowledge or deep functional expertise. A specialist
may serve as an active member of an engagement team, or as a source of primary
knowledge support on which the team can draw. Most specialists focus more on
knowledge building and on consulting to teams rather than to clients directly.
Specialists advance to experts and senior experts based on their pace of knowledge
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development, their internal and external reputation expansion, and their ability to
deliver impact to teams. Some experts advance to the newly created position of
associate principal and on to principal, while others remain experts, focusing more on
deepening and leveraging their area of expertise.
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In addition to providing the opportunity to work with a range of clients that includes startups,
nonprofits, multinational giants, and venture capitalists, McKinsey also allows consultants to
pursue entrepreneurial activities. Consultants can help establish a new office, or take on leadingedge issues by helping to found or grow a specialized practice. The focus in any given area can
last the length of an engagement or span an entire career.
McKinsey's college hiring focuses on top candidates from business as well as other
disciplines. Half of the company's new consultants come directly from industry or with graduate
degrees other than MBAs. The company hires primarily from graduate or post-doctoral research
programs in economics, engineering, humanities, law, medicine, and the natural and social
sciences. Approximately 35% of McKinsey consultants have advanced degrees in business.
In addition, the company now hires employees with established careers in specialized areas
of interest to McKinsey, including brand management, corporate finance, information technology,
law, and medicine. McKinsey positions the diversity of its staff's education and nationalities as
making the firm well-rounded, providing a variety of viewpoints and experiences to foster a
creative and dynamic environment in which to serve clients.
Within the company's @McKinsey business, the company hires eBusiness Builders, or eBBs,
which work with a variety of global clients ranging from startups to established enterprises, in
several industries. The @McKinsey group looks for aggressive, creative thinkers with ecommerce knowledge. Ideal candidates have strong managerial and people skills, the ability to
multitask, and personal networks and contacts within the e-commerce community. In addition,
candidates should have experience in one or more of the following areas:
McKinsey's Business Technology Offices (BTOs) hire candidates with four main qualities:
Problem solving ability, showing logical reasoning, creative thinking, comfort with
numbers, and an ability to address complex issues;
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The company continues to hire BTO consultants from a variety of industries and backgrounds
including science, economics, and creative fields. BTO candidates must add deep technical
competence to solving strategic business problems and be able to evaluate the underlying
technologies. Furthering the company's "one firm" concept, the BTOs support and encourage
short-term transfers and longer-term moves between the BTO's locations and other McKinsey
offices.
A. 3. Training Practices
McKinsey provides three primary types of support to further its employees' professional
development and growth, as follows:
The company places great emphasis on learning on-the-job with client work starting
immediately for its professional employees. The company's new consulting staff members work
with senior McKinsey partners and, at times, a specialist with knowledge in an industry or
functional area. The company expects its associates to contribute from the outset by having
responsibility as a full team member, placing an emphasis on learning by observing and
performing. More senior consultants coach new team members and provide feedback.
The "engagement manager" and partners on the team give associates ongoing feedback on
their individual performance. In addition, associates are each assigned a "development leader"
who serves as a source of information, support, and guidance as the associate moves between
projects. The development leader, who is a senior consultant, monitors the associate's progress
based on appraisals received at the end of projects. The development leader provides feedback
to the associate twice a year and offers career advice.
The assignment of individuals to projects also furthers the training and education process for
McKinsey. The company assigns associates to projects based on training requirements
concerning skills, industry knowledge, clients, and types of business problems to ensure a broad
exposure to issues and to gain a general background. As consultants gain expertise in a
functional area or industry, the company expects them to share their knowledge with colleagues
on teams and through the knowledge infrastructure. Through these techniques, the company
broadens it knowledge base across its consultants. McKinsey employees also participate in
company-sponsored internal research activities that help the company's consultants stay current
on management issues.
Through McKinsey's various functional and industry practices, consultants build knowledge
and expertise in specific areas. "Practice learning" takes several forms including original
research, shaping the company's thinking on an emerging growth sector, and assuming a
leadership role in building a new practice. The company encourages thought leadership and
promotes consultants efforts at writing for publications. Through the company's efforts at
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building knowledge, which other consultants then internalize, the company extends its knowledge
and provides informed support to its client service teams. Thought leadership is also
encouraged through involvement in forums including McKinsey's annual Practice Olympics or
practice sponsored learning seminars.
Formal training for new hires at McKinsey focuses on strengthening problem solving, financial
analysis, communication, and interpersonal skills. As consultants progress in their career, the
company shifts the focus of additional training to client leadership, personal impact, negotiating
skills, and client-relationship building. Consultants also attend training related to the industry and
functional areas of their choice, addressing topics such as industry developments and new
problem solving approaches.
McKinsey continues to sponsor formal training programs for business analysts, associates,
specialists and partners, which fall into three categories:
Prerequisite Programs -- McKinsey offers three prerequisite programs for its new staff
members. These programs are designed to build basic functional skills for new consultants with
little or no formal business education and to help all new consultants prepare to be effective team
members:
Basic Consulting Readiness (BCR) -- The BCR training program helps familiarize
pre-associates and associates with the skills needed to be effective team members in
early client engagements. The topics include structured problem solving on
McKinsey teams, principles of teamwork, and basic client communications. The
program also offers an orientation to the core values of the firm, its diverse culture,
and professional standards. The company conducts its BCR program at the office
level, although the company establishes a firm-wide curriculum. This gives
individuals an opportunity to interact socially and to work with peers and more senior
consultants from their office.
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Initial Leadership Workshop (ILW) -- ILW offers consultants, who have spent at least
12 months honing problem solving and communications skills, a chance to develop
their leadership abilities. The first week of this two-week program addresses dealing
with conflict, handling different operating styles, influencing with integrity, and
facilitating group work. The second week applies these skills in more complex, "real
world" client situations. As part of the workshop, participants work toward attaining a
top executive mindset, staying ahead of the problem, leveraging the firm's knowledge
resources, and persuading the client to take action.
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participants are responsible for coaching and counseling others in the workshop as a
means of further developing their own management and leadership skills.
New Partners Orientation -- McKinsey offers its New Partners Orientation course
shortly after election to partnership. The partner and spouse attend a week-long
seminar designed to "celebrate" and help the partner learn more about the partner's
new role, further the understanding of the firm from an owner's perspective, and
sharpen skills as a client service team leader, geographic or practice entrepreneur,
and leader of other McKinsey staff. Much of the program involves "getting to know"
new partners, with afternoons set aside for sports and other social activities.
The company also places an emphasis on knowledge building through the its various
functional and industry practices. This allows consultants to build extensive knowledge and
expertise in areas of most interest to them. To further this knowledge, the company offers
forums, such as its annual Practice Olympics or learning seminars, to showcase consultants'
thinking and spread ideas throughout the firm. In addition, McKinsey offers its professionals
entrepreneurial opportunities, such as opening a new office or practice, or working in a remote
location. The company encourages thought leadership that can be advanced through writing for
publications, including the company's McKinsey Quarterly, or taking a leadership role in recruiting
or other areas of professional development.
Programs Focused on Specific Consulting Skills -- In addition to prerequisite and rolechange programs, McKinsey offers formal training focused on developing specific consulting
skills. Three two to three-day programs form the current core of these offerings, as follows:
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The company claims it does not use "billings" as a measure of "impact" at clients but instead
expects to demonstrate a large financial benefit for the client as opposed to high billables. A
Client Impact Committee oversees the evaluation of the extent of impact McKinsey's work has on
a client. The company also claims that the second criterion is as important as the first. The
committee also evaluates a candidate's leadership and problem solving skills. The firm uses
collaboration as a performance factor for its employees, with several partners working together on
a client service team. The company relies on developing networks between partners and
consultants to draw on the firm's knowledge base.
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As part of the company's effort to attract and retain employees during 2000, McKinsey
increased the pay levels for its associates. According to a report in The Wall Street Journal, the
company offered pay increases of at least 15%. The article reported that an incoming first-year
McKinsey associate in the U.S. earned $130,000 to $150,000 with bonus. Salaries for associate
principals ranged from $400,000 to $450,000, while newly appointed partners earned around
$700,000. Senior partners at the firm had multimillion-dollar pay packages. In general, the
company's compensation packages were considered "cash heavy," and the firm could not
compete successfully for candidates looking for immediate wealth or those wanting their
compensation packages to include a large equity base. With reduced employee turnover, RGI
believes current base salaries fall into the same range.
In an effort to address the requirement of ownership wealth, the firm developed the McKinsey
Investment Office as a way for its partners and associates to tap into Internet and other startup
money. The Investment Office is run independently of the firm's consulting services. The office
makes investments of pooled monies into venture capital funds, leveraged buyout funds, hedge
funds, and index funds, managed by independent managers. The investments represent both
pension funds and after-tax investments by firm members.
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Alliances/Joint Ventures/Partnerships
While the company will form alliances with various businesses, such as systems vendors and
enterprise software companies, McKinsey & Company traditionally does not announce any
ongoing partnerships with these vendors. McKinsey will align with an appropriate company to
solve a client's particular problem but generally does not publicly formalize relationships with
these "partners" or provide any information concerning their use during a project.
To compete more effectively in the e-commerce practice, the firm now allows the McKinsey
name to be used more openly in conjunction with some of these alliances. The company
believes it must discuss its achievements to attract e-commerce talent to the firm and to win
startup businesses as clients.
McKinsey maintains a conservative policy toward investing in clients. While the company has
taken stakes in more than 100 technology startups, McKinsey continues to refuse long-term
stakes and board seats in these firms. In addition, the company keeps the shares in a blind trust
so partners generally do not know if McKinsey holds a financial stake in companies that they are
advising. The company's Managing Director, Rajat Gupta, states that the company is not trying
to become an investment company. As noted earlier, McKinsey now runs an Investment Office
that makes investments in various funds operated by independent managers.
A. Acquisitions
McKinsey's strategy has been to grow the company from within, avoiding growth through
acquisitions. The company's policy is to enter new geographic, functional or vertical markets
through its existing consulting staff. The firm follows a "geographic entrepreneurship" strategy,
establishing new practices in developing economies. The policy furthers the company's one-firm
concept, with all professionals following the same values worldwide.
In a departure from the tradition of growing practices from within, in January 2001, McKinsey
acquired Envision, a Chicago-based brand strategy firm, with Envision's employees joining
McKinsey's Branding Practice. The move, which the firm positions as a part of McKinsey's
continued emphasis on investing in knowledge development, builds on an initiative to establish a
dedicated Branding Practice. The Branding Practice has substantially strengthened and
expanded the firm's capabilities in helping clients link business strategy, brand strategy,
organization delivery of brand strategy, and marketing spend effectiveness. The terms of the
acquisition were not disclosed.
David Court, the principal of the firm's overall Marketing Practice views the acquisition partly
as a "mass hiring" to speed the expansion of the firm's Branding Practice. Mr. Court believes that
the team at Envision is highly regarded for their "unique empirical approach to deriving new
consumer insights and brand strategies." According to Mr. Court, the Envision executives
combine sophisticated consumer market research and quantitative modeling with creative
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insights to develop brand strategies that are grounded in a deep understanding of consumer
behaviors and attitudes.
Envision's current clients include blue-chip companies in a variety of sectors, including
financial services, retailing, packaged goods, media, and pharmaceuticals. McKinsey and
Envision have worked together on a number of engagements and have found their approaches to
be complementary. Through the combination, McKinsey believes its can create a more
comprehensive brand development system that drives overall business performance
improvement for clients. Advertising agencies may view this move as a threat to their own
branding operations.
B. Alliances
Recently, McKinsey has developed and publicized its research alliances with a few
companies, including the following:
Media Metrix -- McKinsey and Media Metrix, a leader in Internet and Digital Media audience
measurement, announced a strategic research alliance to develop a deep understanding of
online consumer behavior and its implications for e-businesses. Combining McKinsey's in-depth
marketing and e-business expertise with Media Metrix's leadership position in online audience
measurement, the new alliance brings powerful insights into the e-consumer to help executives
build, grow and market stronger e-businesses. Through the alliance, McKinsey will leverage
Media Metrix's comprehensive database of actual online usage, further supporting clients across
the full spectrum of developing sustainable e-business models. Media Metrix will gain an even
deeper understanding of online behavior and trends, strengthening its ability to meet clients'
information requirements.
According to John Forsyth, Principal and co-leader of McKinsey's e-Marketing Practice, by
pairing Media Metrix's resource of consumer online behavior data with the firm's experience in
understanding consumer needs and branding, McKinsey can strengthen its position as a unique
consulting resource for e-businesses. In addition to supporting client research initiatives, the
alliance will actively study the growing online world, periodically releasing findings to the public.
Through this strategic research alliance with Media Metrix, McKinsey professionals gain
exclusive access to the individual click-by-click online behavior of consumers. Media Metrix has
a U.S. panel of 50,000 people under measurement. Overall, it tracks nearly 100,000 consumers
in markets that account for 85% of global Internet users. With the firm's unique access to the
disaggregated data through Media Metrix, McKinsey can design and perform custom analysis for
any e-commerce business. The firm positions the net result as improved performance in the
critical dimensions of customer acquisition, conversion, and retention.
Center for Advanced Purchasing Studies -- McKinsey's Purchasing and Supply Management
Practice (PSM) and the Center for Advanced Purchasing Studies (CAPS) published a white paper
that found that the majority of leading sites still fail to deliver substantial, long-term economic
value to users. The Center for Advanced Purchasing Studies (CAPS) is a non-profit, independent
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research organization co-sponsored by Arizona State University College of Business and the
National Association of Purchasing Management. Its mission is to help organizations achieve
competitive advantage by providing them with leading-edge research to support the evolution of
strategic purchasing and supply management.
The report indicates that the greatest value B2B sites have already produced, and will likely
continue to deliver, stems from knowledge building and the removal of waste from supply chains.
This further undermines the assumptions of many B2B users that the value of marketplaces is
driven by shifting or squeezing supplier profits. The study concludes that a rapid retooling of site
capabilities or a major industry consolidation may be the best options for delivering value to
buyers and returns to B2B e-marketplace investors.
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Financials
The following chart displays estimates of McKinsey's revenue for the last six years, showing
steadily increasing sales. In FY00, revenue reached $3.4B, representing an increase of over
25% from $2.7B in FY99. As a private company, McKinsey does not release any financial
information.
McKinsey & Company Revenue
($B)
$3.4
$3.5
$3.0
$2.5
$2.5
$2.0
$2.0
$2.7
$2.2
$1.7
$1.5
$1.0
$0.5
$0.0
1995 1996 1997 1998 1999 2000
Source: 1995-1997 revenue estimates from Kennedy Information Research Group figures; 1998
revenue from McKinsey spokesperson; 1999 revenue estimate from Hoovers Online;
2000 revenue from Financial Times.
A. International Operations
McKinsey considers itself a global company with more than 80 offices located in over 40
countries. The company claims its consultants hold citizenship in over 89 countries. McKinsey
has indicated that it conducts 60% of its work outside of the U.S. Through the company's team
concept, consultants work on assignments of varying lengths in different offices and different
countries. Through these varied assignments, the company believes its consultants become
more aware of the global environment. The company requires any candidate applying for a
specific office to have language fluency for that country or previous work or educational
experience in the requested country.
The following chart displays the locations of McKinsey offices worldwide. Since August,
1999, the firm's Managing Director, Rajat Gupta, and his staff have maintained their office in
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Stamford, Connecticut. Over the last year, the company opened offices in Austin, Texas and Tel
Aviv, Israel.
McKinsey & Company Office Locations
Americas
Atlanta
Austin
Bogota
Boston
Buenos Aires
Caracas
Charlotte
Chicago
Cleveland
Dallas
Detroit
Houston
Los Angeles
Mexico
Miami
Minneapolis
Monterrey
Montreal
New Jersey
New York
Orange County
Pacific Northwest (Seattle)
Pittsburgh
Rio de Janeiro
San Francisco
Santiago
Sao Paulo
Silicon Valley (Palo Alto)
Stamford
Toronto
Washington, DC
Asia-Pacific
Auckland
Bangkok
Beijing
Delhi
Hong Kong
Jakarta
Kuala Lumpur
Manila
Melbourne
Mumbai
Osaka
Seoul
Shanghai
Singapore
Sydney
Taipei
Tokyo
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The company also operates Business Technology Offices (BTOs), defined as virtual offices
operating as a single global office, from several locations including Amsterdam, Buenos Aries,
Chicago, Frankfurt, London, Madrid, Milan, Paris, Sao Paulo, Silicon Valley (Palo Alto, CA)
Stamford, Stockholm, and Zurich. Reinforcing McKinsey's one-firm philosophy, the BTO supports
and encourages short-term transfers and longer-term moves between the BTO's locations and
other McKinsey offices.
The following chart displays McKinsey's distribution of consultants across regions. Almost
50% of the company's consultants are located in the Europe/Africa region, totaling over 2900
consultants. Over 2450 consultants are located in offices throughout the Americas with 80% of
these located in the U.S.
Geographic Distribution of McKinsey & Company Consultants
Asia/Pacific
10%
Americas
41%
Europe/Africa
49%
To expand its operations into new geographic regions, current consultants establish a
relationship with several local clients. The company then expands operations by hiring nationals.
As the nationals become more experienced with McKinsey through assignments in other
countries, McKinsey transfers leadership of the office to the nationals. The company does not
buy local consulting firms or arrange affiliations to expand into new regions.
The new office in Israel, under the leadership of Jonathan Kolodny, offers consulting services
to industrial companies and local startups. The office's fee structure is designed to allow clients
to pay for McKinsey's services in either equity or cash, emulating the model established by
McKinsey's Silicon Valley Office, which has worked with local venture capital funds. The firm
currently is discussing potential working relationships with a few local venture capital funds in
Israel. The new office will attempt to capitalize on Israel's thriving high tech industry and get
involved with smaller companies. McKinsey has provided its consulting services to several Israeli
companies over the last few years, including Bank Hapoalim, Supersol, Claridge, Elite/Strauss,
and Osem.
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Industry Focus
McKinsey operates several industry practices that help the company's teams build,
disseminate, and apply their knowledge of the key industries served by the firm. An industry
practice represents a network of people interested in developing McKinsey's capability in a
specific industry. The industry practices assess issues, as follows:
McKinsey currently operates 17 industry practices, having added the Nonprofit Industry
practice over the last year, as follows:
The company continues to locate its specialized industry practices in the appropriate
geographic markets to enable the company to respond quickly to changes in market trends,
technologies, and competitive forces. As examples, McKinsey locates its financial institution
practice in New York City, while its energy practice operates from Dallas. In this manner, the
company has close access to a large client base while maintaining expertise in recent practices in
the market.
The New Jersey office was created in 1993 to further develop the company's relationships
with companies in the healthcare, pharmaceuticals, medical products, telecommunications,
consumer goods, and chemicals industries. The New Jersey office is the base for a significant
portion of McKinsey's Advanced Materials and Chemicals (AMC) Practice. This practice serves a
large variety of chemical companies, from traditional industry leaders to aggressive new
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competitors. As McKinsey's AMC industry clients become more global, its AMC Practice has
increasingly staffed internationally, mixing consultants from the US, Europe, and Asia to reflect
the staffing patterns of its client teams and to span different management and work cultures.
McKinsey's southeast complex is comprised of offices in Atlanta, Charlotte, and Miami,
serving a broad range of industries and functional areas throughout the Southeastern U.S., the
Caribbean, and Latin America. The Atlanta office, which opened in 1978, focuses on ecommerce, telecommunications, transportation, retailing, forest products, and banking/insurance.
The Charlotte office, formed in 1996, focuses on financial institutions, retail, manufacturing,
healthcare, and e-commerce. The office positions itself as an entrepreneurial group serving the
fastest moving companies in the Carolinas. The Miami office, which opened in 1997, focuses on
the banking, media, public sector, retail, technology, and telecommunications markets and serves
as an @McKinsey Accelerator office. The office serves Florida, the Caribbean basin, and
northern Latin America.
McKinsey's Silicon Valley office (SVO) serves technology and biotechnology companies in
Silicon Valley, and on the West Coast. In the SVO, teams of industry-experienced consultants
partner with investors, entrepreneurs, and senior executives of high tech, biotech, and ecommerce companies, to accelerate their business development and enhance their performance.
The SVO leads a rapidly expanding high tech practice, and its consultants have strong ties to the
startup and venture capital communities. In addition to building the firm's technology expertise on
the West Coast, SVO serves as one of the firm's Business Technology Offices. SVO hosts
several leaders of McKinsey's North American High Tech Practice, as well as its global ecommerce community, @McKinsey, which helps clients create high growth Internet-based
businesses. The Silicon Valley office also is active in the healthcare sector, focusing on issues
relating to medical technologies and online healthcare.
The Cleveland, Pittsburgh, and Detroit complex focuses on the chemicals, healthcare,
financial institutions, consumer products, high tech, automotive, energy and metals/mining
markets. The complex employs approximately 185 consultants, with 100 in Cleveland, 45 in
Pittsburgh, and 40 in Detroit.
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The Auto and Assembly Practice represents a global effort, employing professionals
experienced in automotive, engineering, and related disciplines as well as business management.
The consultants' backgrounds vary from those with MBAs to others with advanced degrees in
related fields like economics or engineering, to experienced professionals from the automotive
industry. Practice professionals meet to share project insights and discuss industry
developments, allowing clients to benefit from global knowledge and experience. The company
addresses industry-specific issues providing perspectives on adoption rates of new materials into
cars, regional forecasting, and the changing supplier/OEM relationship.
McKinsey offers its clients an A&A Extranet providing direct access to:
Insights into tools and concepts the firm uses in its daily practice;
Andreas E. Zielke, a Director in the Berlin Office, responsible for regional leadership
in Europe;
Anjan Chatterjee, a Director and office manager in the Detroit Office, responsible for
regional leadership in North America;
Glenn Mercer, a Practice Principal in the Cleveland office responsible for sector
knowledge development globally; and
Snke Bstlein, a principal in the Frankfurt office, responsible for the Project
Engineering, Contracting and Construction sub-section concentrating on developing
knowledge and expertise to serve clients on such issues as technology management,
engineering, project management, procurement, construction, marketing/sales, and
services.
In addition to these partners, about 200 consultants work on automotive or assembly related
engagements at any given time. Most of these consultants have MBAs (or advanced degrees in
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economics). Many have had automotive work experience before joining McKinsey, and many
have academic and professional backgrounds in areas relevant to the industry such as physics,
electronics, electrical and mechanical engineering, manufacturing, and finance. McKinsey offices
in Dusseldorf, London, Cleveland, and Paris have industry specialists assigned more or less fulltime to the sector. Each of these specialists is knowledgeable about sources of information on
the industry, contacts that can provide more assistance, and frameworks and approaches
developed within the firm. Additionally, these specialists create and maintain very large
databases of "best practice" and other industry information.
The firm holds regular sector meetings that allow consultants to come together to share
insights from their experiences, to discuss significant developments within the industry worldwide,
and to codify knowledge as it emerges. Internal research projects have included developing
insights on the changing supplier/OEM relationship, on the drivers of mergers and acquisitions in
the industry, and in forecasting the Internet's impact on car retailing. The firm's knowledgebuilding efforts in a variety of fields has led to numerous external publications, including articles
(e.g., in the Economist Intelligence Unit, Automotive Engineer, and Automotive Manufacturing
and Production) and books (e.g., Simplicity Wins, Quality Pays, The Automotive Industry at the
Turn of the Century, and Global Automotive Retailing).
McKinsey supplements its knowledge base with the efforts of research partners, to form a
network of resources available to clients. Recent formal research partners include the Technical
University of Darmstadt and the Technical University of Aachen in Europe, and the University of
Pennsylvania's Wharton School, the University of Michigan, and MIT in the U.S. The firm claims
to be the only consulting firm that is a member of the International Motor Vehicle Program (IMVP)
-- a research group that authored the book, The Machine that Changed the World. The company
draws on these and other resources to help solve client problems efficiently and effectively.
Europe -- The European Banking and Insurance practice area assists clients in four
interest groups: Asset Management, Insurance, Retail Banking, and Wholesale
Banking.
North America -- The North American Banking and Securities Practice similarly has
four interest groups: Asset Management, Investment and Wholesale Banking,
Payments/E-Commerce, and Retail Banking/Consumer Credit.
Emerging Markets -- Emerging Markets works with clients in Africa, Asia, Eastern
Europe, Latin America, and the Middle East and covers a wide variety of
banking/securities and insurance topics.
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The Banking and Securities Practice works closely with the Insurance Practice to build and
share knowledge.
C. Chemicals
McKinsey's Chemicals Practice serves the chemicals industry across all functional areas.
The firm focuses on such areas as strategy, operations, innovation, and technology management
and covers all major regions worldwide. The company provides specialized research support and
thought leadership on issues associated with both basic commodity chemicals and specialty
sectors.
The focus and scope of McKinsey's Chemicals Practice includes the following:
Many of McKinsey's consultants in this practice have prior chemical industry experience, and
most have academic backgrounds in chemical engineering, chemistry, materials science, or
physics. The firm conducts research in a variety of areas such as the ongoing restructuring of the
industry, operational excellence, and radical new models for success in chemicals.
McKinsey's Chemicals Practice serves a large variety of chemical companies, from traditional
industry leaders to aggressive new competitors. Client businesses range from petrochemical
companies to those producing a range of specialty products. Due to a restructuring of the
chemical industry, large new players in the market have hired McKinsey to assist in their efforts to
succeed under changing market and environmental conditions. The company's chemicals
practice operates under a global structure, with teams comprised of consultants from the U.S.,
Europe, and Asia to reflect the different management and work cultures within the industry.
D. Consumer/Packaged Goods
McKinsey's Consumer/Packaged Goods Practice helps clients address a full range of
strategic, organizational, and operational issues that impact the industry both regionally and
worldwide. The company organizes its practice into groups in North America and Europe in an
effort to deliver a better understanding of local markets. Over the past three years, McKinsey
claims its Consumer/Packaged Goods practice has served 17 of the top 30 companies in this
industry, focusing on segments such as food and beverage, personal care, household products,
and consumer durables.
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The New Jersey Office (NJO) is a leader in McKinsey's Northeastern U.S. Consumer
Practice, which includes its packaged goods, retail and media groups. Its clients span a broad
consumer spectrum, from traditional packaged goods companies to over-the-counter divisions of
large pharmaceutical companies, to specialty retailers and grocers. While the majority of these
clients are multi-national corporations, almost all are headquartered in New Jersey, New York or
Connecticut, approximately 30-40 minutes from the NJO.
The European Practice covers the following functional areas:
Electric power;
Downstream natural gas; and
Water utilities.
F. High Tech
McKinsey's global High Tech Practice serves a variety of clients from small, pre-IPO startup
firms, to venture capital firms, to traditional players in the industry, as well as industry attackers.
The company serves large and leading-edge high technology clients on a diverse range of issues
that include strategy, organization, sales and marketing, and operations effectiveness. The
Practice is composed of six groups:
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McKinsey's global Aerospace & Defense Practice, which includes over 75 professionals
worldwide, is divided into commercial, military, and civil sectors. Over the past five years, the firm
has served 20 of the top 25 U.S. and European companies in such areas as aircrafts, missiles,
military vehicles, space vehicles, satellites, defense electronics, avionics, and navigation
equipment.
G. Insurance
The goal of McKinsey's Insurance Practice is to effect positive significant results on the firm's
clients by impacting their strategy, operations, and performance. McKinsey's Insurance Practice
addresses all segments of the industry, including property-casualty, life and annuities,
supplemental health, and reinsurance. In addition, the company covers segments that provide
asset management and other financial services. McKinsey offers expertise in all areas specific to
risk and asset management, including claims management, underwriting, pricing, distribution, IT,
operations effectiveness, and investment.
McKinseys insurance business is organized on a regional basis, with practices focused on
Europe, North America, and Asia-Pacific. The practice works closely with McKinsey's Banking &
Securities Practice to build and share knowledge between the practices.
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Projects conducted by McKinsey consultants address such areas as competitive threats; the
emergence of competing technologies such as satellite, cable and the Internet; content and
product availability; the cost of new product development; and regulation. In addition, the
company conducts projects on advertising in both traditional media and the Internet.
McKinsey segments its Metals and Mining Practice into two competence centers: the
European center, which is focused on metals; and the Mining Competence Center, located in
Johannesburg, which focuses on mining issues.
J. Nonprofit
McKinsey created its Nonprofit Practice in the summer of 2000 to have an impact in the firm's
external communities and internal groups. The practice's mission is to have "extraordinary"
impact in communities worldwide, through efforts that will shape the nonprofit sector and excite,
inspire, and develop McKinsey staff as a core part of their McKinsey experience.
K. Payor/Provider
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The Payor/Provider Practice works with healthcare industry clients on issues of strategy,
organization, and operational effectiveness issues. The practice addresses two basic segments:
The global practice operates regional centers in Europe and North America with extensive
experience in the U.S., Europe, Japan, Australia, and in emerging markets such as China, India,
Southeast Asia, and Latin America. The practice's professionals have access to internal and
external experts and information, and maintain extensive knowledge development activities,
research collections, and proprietary databases on industry economics and structure. The firm
has established, through client experience and knowledge resources, a range of insights about
where to compete and how to compete in the changing healthcare industry.
The company takes a broad view of healthcare delivery, analyzing the field from a variety of
points while handling a diverse set of issues. Local McKinsey offices handle a large portion of the
projects in this industry segment.
L. Petroleum
McKinsey's Petroleum Practice serves clients within all areas of the oil industry, from
upstream activities such as exploration, drilling, production, and services, through transportation
and refining, to wholesale and retail marketing. The company organizes its practice around
subsectors including the following:
Corporate center;
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The company further enhances its subsector perspectives through the activities of
McKinsey's Knowledge Colleges and service offerings, such as an annual Upstream
Benchmarking survey. The practice is currently addressing oil company performance analyses,
the industry's recent merger and acquisition activities, and "new" techniques for valuing oil
company assets.
Licensing/alliances;
Mergers and acquisitions;
R&D/pipeline analysis;
Competition and competitive analysis; and
Market size and growth.
Prescription drugs;
Over-the-counter (OTC) drugs and medical products;
Medical devices, equipment, supplies and in vitro diagnostics (laboratory tests);
Biotechnology for medical purposes; and
Veterinary medicine.
McKinsey locates its North American Pharmaceuticals and Medical Products practice in its
New Jersey office. This location is within a one-hour drive from the worldwide headquarters of 11
of the world's 20 largest pharmaceutical companies, as well as many important medical products
companies and high tech startups. The practice serves many of the world's leading makers of
prescription pharmaceuticals, medical/surgical devices, biotechnology products, and over-thecounter medicines. The office also serves a number of payor and provider organizations located
in the region. The company operates a Pharmaceuticals/Medical Products Resource Center from
the New Jersey office, which includes a state-of-the-art library and an Internet-based research
lab. In addition, practice leaders and industry experts work from the facility.
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The practice has worked on a variety of projects, including major mergers of pharmaceutical
companies, global launches of new breakthrough products, development of forward-looking
research and development strategies, and corporate-wide turnaround programs. The practice
also addresses special projects to enhance the firm's knowledge in areas ranging from genomics
to the impact of mergers and acquisitions on the pharmaceutical industry.
The European PMP Practice focuses on many of the same market segments that include
ethical and OTC pharmaceutical companies; medical equipment, devices and supplies;
diagnostics; biotechnology; and the animal health industries. In addition, the practice works with
clients to address such issues as research and development/pipeline, licensing/alliances,
manufacturing, sales and marketing, registration, mergers and acquisitions, and legal
environmental analysis.
The Payor/Provider Practice, which addresses healthcare issues, complements the
Pharmaceuticals and Medical Products (PMP) Practice with information regarding healthcare
utilization, incidence of diseases and conditions, and related topics.
Pulp, paper and allied products, meeting the needs of producers, converters, and
traders;
O. Retail
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McKinsey's Retail Practice is based in North America and serves clients worldwide.
According to McKinsey, the North American Retail Practice serves more than one-third of the top
100 global retailers and more than one-half of the top 25 retailers in the U.S. The company
supports clients within the following four industry groups:
Food service, hospitality and leisure facilities including hotels and resorts,
gaming/casinos, sports, fast-food and table service restaurants, home meal
replacement stores, and catering.
"Racing for the World" is a global initiative launched by the McKinsey Retail Practice to
examine how forces in the new economy are reshaping the industry and to determine what steps
retailers can take to prosper in the changing environment.
The mission of McKinsey's Retail Practice is to help clients make positive, lasting, and
substantial improvements in their performance. The firm's problem solving approach combines
an integrated total business perspective with fact-based analyses, resulting in new approaches to
tackling business problems. McKinsey's Retail Practice has six service lines, geared to meeting
the specific issues of the retail marketplace:
E-commerce;
Operational effectiveness;
Organization; and
Merchandising.
Consultants in these services work with other McKinsey practices to find high-impact
solutions to retail challenges. The firm seeks out ways to sharpen retail performance through
client engagements, practice development efforts, and joint projects with industry associations.
McKinsey works with leading general merchandise, apparel and footwear retailers, and
manufacturers. Its retail clients include department stores, discounters, drugstores, category
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killers, specialty stores, catalogers, and pure play e-tailers. The firm also serves top apparel and
footwear vendors, textile mills, and other companies who directly supply the retail industry. The
firm believes that its perspective and expertise helps clients meet the challenges posed by the
changing environment.
The Retail Practice also serves leading global, national and regional food retailers,
wholesalers, and distributors on a variety of issues. The firm has contributed to industry
knowledge through presentations to and joint projects with the Food Marketing Institute, the
International Food Distributors Association, and the Grocery Manufacturers of America. The
firm's position on the implications of grocery consolidation, the economics of home meal
replacement, and other issues has been reported in many industry publications, including
Supermarket News and Nation's Restaurant News.
McKinsey serves top national and regional companies across the food service sector. The
firm has created and built new businesses for both incumbents and new entrants, and it has
improved and turned around existing businesses. McKinsey recently published a major work on
achieving profitable growth in the food service industry, with insights into management models,
labor productivity issues, and concept-renewal drivers. The firm is building on those findings
through an industry-sponsored project called Foodservice 2010.
P. Telecommunications
The global Telecommunications Practice serves a diverse set of clients including incumbents
and new entrants. These range from larger, more established companies that are re-positioning
themselves in a fast-changing environment to smaller, fast-growing companies looking to
capitalize on industry changes such as deregulation, licensing, and voice and data convergence.
McKinsey positions the practice as offering "cutting edge" wireline and wireless expertise that
actively supports both service providers and manufacturers, as well as investors, governments
and agencies, and regulatory bodies. McKinsey has conducted over 1,000 engagements within
the telecommunications industry over the past five years, serving 18 of the top 20
telecommunications service providers and 8 of the top 10 equipment suppliers worldwide. The
head of the company's North American Telecommunications Practice is located in the Stamford
Office.
The company's projects span a range of issues across businesses, customer segments, and
geographies. McKinseys telecommunications consultants assess various technologies including
mobile and satellite systems; business lines, including equipment and local, long distance, and
data/Internet services; and functional areas including strategy, operations, and organization.
McKinsey organizes the practice into three separate entities -- the Americas, European, and
Asia/Pacific -- with each division focused on helping clients deal with a variety of localized and
global telecommunications issues. The practice concentrates on issues relating to the following
topics:
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Operations, such as capital investment, cost reductions, networks and logistics; and
Strategy, including mission, sales, profits, and procurement.
The company positions its practice as providing a global perspective, stressing its network of
international offices and extensive experience to provide local knowledge to clients worldwide.
The Telecommunications Practice has developed working relationships with related practices and
teams, including the High Technology and e-Commerce practices and the BTOs.
Q. Transportation
McKinsey's Transportation Practice focuses on the transport of people and goods, covering
the full range of transportation sub-sectors, as follows:
Airlines and airports, including alliances, cargo, crew relations, e-commerce, fleet
management and maintenance, loyalty programs, and service design;
Railroads, serving both passenger and freight concerns on matters such as growth
strategies, e-commerce, equipment, labor, maintenance, and performance;
Trucking, forwarding and logistics, addressing third and fourth party logistics, IT,
rates, supply chain, and warehousing;
Shipping and ports, working on issues such as cargo, fleet management, freight
management, forwarding, passenger relations, and operations;
Travel and tourism, offering regional and global perspectives to hotels and
destinations, tour operators, and travel agencies.
The company addresses transportation manufacturing issues within McKinsey's Auto and
Assembly Practice.
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