This paper applies the management by objective (MBO) philosophy of Peter Drucker to the case study analysis of McKinsey and Company (McKinsey). Founded in 1926 by James “Mac” McKinsey, a University of Chicago professor, the firm started as an accounting and engineering consultancy agency, which experienced rapid growth. This paper is a plan that outlines key aspects of MBO and how it will have both positive and negative effects when applied to the McKinsey case study.
Mac recruited experienced executives and trained them on an integrated approached he coined as the General Survey Outline (Mintzberg, et al., 2003, p. 319). Over the years, the firm’s general approach to consultancy lacked specialized knowledge concerning industry competencies. This paper brings into focus McKinsey’s potential to make a paradigm shift, and provides recommendations to implement MBO to increase the organizations effectiveness internationally.
The leaders of McKinsey wanted to transform the firm of practice development, (“snowball making” the internal name) to client development (“snowball throwing”). To achieve this, the concept of general practitioners would have to change in order to keep up with technology and the global marketplace. The paper provides recommendation to aide McKinsey in development, capturing, and leveraging company assets worldwide.
McKinsey and Co. Case Study Summary
The McKinsey and Company case study is a presentation of the management of knowledge and learning by a large consulting firm. The case study discusses the founding and evolution of the company under the direction of a group of professional educators and executives. The company has served as a consultant to elite firms focusing on issues important to top management for 70 years. The long history of the company is described with the addition of tables and charts to depict 20 year growth rates, mission and principles, areas of practice, and functional groups. Succession, employee growth and development; expansion, and shrinkage are explained in detail within the case study. The company expanded from the original small organization to one of global proportions and significant stature within the industry. The focus of the text is to depict the management and evolution of the firm through the periods of change and discuss future decisions and direction under a new managing director.
Key Aspects of Drucker’s Philosophy
Peter Drucker is recognized as the founder of modern management. He advocated for autonomy, participatory democracy, and doing what one wants. He promoted the creation of a pluralistic institution of a free society that functions and performs. In searching for finding an answer to how individual freedom can be observed in the corporate society considering the power executed by the managers; Drucker developed the managerial philosophy called management by objectives (MBO). According to Hoopes (2003), managers communicate to their subordinates the goals and objectives based on what is required by the organization; consequently, enabling their subordinates to have autonomy and be responsible for what they do at work.
Drucker created this philosophy of management with the purpose of giving employees the opportunity to achieve freedom and individual responsibility in an organization. In past articles Drucker had defined freedom as “a responsible choice…between…act one way or another” (as cited by Maciariello, 2005). In addition, Drucker defined the concept of responsibility by stating that responsibility has an external component that involves _accountability to a person with authority_ and an internal component that involves _commitment_. Both making responsible choices and be accountable and committed to the person who has authority are the keys for an effective MBO.
According to Maciariello (2006) Drucker believed that “leadership is taking responsibility for results” (p. 29) and that the leader is expected to show integrity and be a role model for others to follow. Regarding the leaders’ responsibility, Drucker stated that the CEO is the only one who can align the internal environment with the external environmental to make certain that the organization understands the demands of the external environment [_market, customers, and competitors_]. Drucker’s stated that the most important rule in business is to serve the consumer (Lafley, 2006).
In addition, Drucker believed “in the power of strategic ideas and making clear choices…. [and that] the only way you can manage change is to create it” (as cited by Lafley, 2006, p. 7). Finally, as the founder of modern management, Drucker viewed organizations as a “means through which people find access to social status, community, achievement, and satisfaction [and the leaders as having] the responsibility to ensure that jobs are fulfilling and that individuals contribute fully” (as cited by Lafley, 2006, p. 7).
Positive Aspects of Strategies Applied
If McKinsey and company were to apply the management theory of Drucker they would identify several positive outcomes related to the management by objectives aspects. The company had experienced expansion into a global market and many changes in management and structure. The company was staffed by professionals with few levels of authority and, according to the case study, run more by consent than decree. The consultants worked within a matrix arrangement with a professional core and contractual element in its operations. The application of MBO would increase the performance of the organization by positively identifying the objectives of each employee and their relationship to the objectives of the organization. Francis and Bolander (1976) claim that relationships between corporate and employee objectives are vital to a positive outcome for any business. Under management by objectives employees would receive input that would help identify their objectives and time lines for implementation and closeout. Greenwood reiterates Drucker’s theory that “objectives are not given, are not obvious, are not something that everyone knows” (p. 229).
Another provision of the Drucker theory is the continuous tracking of the process and continuous feedback. This feedback is valuable in increasing the productivity of the employee and their completion of tasks. With all McKinsey managers participating in the development of the strategic plan and cascading the goals and objectives throughout the firm the positive impact of management by objectives would be evident. Francis and Bolander (1976) describe the positive outcomes of management by objectives as improved communication, increased motivation, reduced conflict between roles, and attention focused on results, not activities. With the adoption of Druckers management by objectives McKinsey and company would experience the positive outcomes described by Francis and Bolander.
Outcomes of Implementation
Using Drucker’s theory of management, the evolution of the management styles practiced in the McKinsey and Co. were based on decentralizing the centers. Once managers established and announced the goals of the organization, they left it up to the leaders operating in each of their offices to practice their own leadership styles to achieve the goals. They called this strategy “practice leadership” (Mintzberg, Lampel, Quinn, and Ghoshal, 2003, p.322).
The management styles implemented were based on the underlying principle of Drucker’s theory of using power top-down. The results of the implementation were significantly positive and led to the emergence of management concepts that we see commonly used today, making McKinsey the industry leader of setting numerous industry trends as explained: (a) Knowledge Management – “Knowledge is the lifeblood of Mckinsey”. (Mintzberg, et al.,, 2003, p.319). Managers at McKinsey developed a process of knowledge management wherein the task of knowledge management had to be each individual’s responsibility and not just that of the team manager or leader. (b) Knowledge Sharing – By the use of publishing their key findings, employees were able to learn and communicate from each other and understand how processes worked best and most efficiently. (c) Online repository of knowledge – The success of their knowledge sharing documents and papers led management to develop an online repository of information wherein centers across the globe could access common data and information that was entered by employees from these centers. This module made a significant impact on the communication among individual centers and the organization as a whole. (d)
Identifying Best Practices – With improved communications, managers were able to access information and identify best practices that helped improve the efficiency of their applications and systems. Identifying best practices also led to the creation of establishing benchmarks that further assisted enhance and improve defects in processes. (e) Inter-office bulletins – The introduction of interoffice bulletins and papers led to the development of newsletters and e-letters that modern organizations use today to communicate with their employees globally. (f) Building Customer Loyalty – Using client relationships and training specialists to build relationships with their clients, McKinsey was one of the pioneering organizations to introduce the concept of customer loyalty. Managers trained their employees to focus only on the clients they worked with and provide then with world class quality service. The idea was to gain the customer’s business for life.
This concept brought in recurring revenues for McKinsey and also helped create a loyal customer base that enhanced McKinsey’s image by in the industry by word of mouth. (g) Focus on Informational Literacy – The rapid increase in the rate of information literacy made it imperative for employees to be trained and kept abreast of new technologies and offerings that helped them sell better, communicate effectively, learn faster about new products and services, and enhance their own skills. (h) Employee growth and enhancement – Managers at McKinsey saw the value in retaining their workforce by providing the training and helping them hone their skills to perform efficiently. They paid attention to their employee’s growth patterns and career paths and assisted them in developing their profiles so they could move them laterally or higher up in the organization without having to search for someone from the outside. This also helped build the employee knowledge base that could be transferred or shared with one another when needed.
One of the negative aspects of the evolution was that the organization grew too fast. Secondly, the organization became a victim of technology where most of the teams were virtual teams leading to lack of direct interaction. Finally, the decentralization of each business unit, across the globe, led to each unit creating their own processes using the same applications, which resulted in more time being spent in determining best practices of successful processes.
“A change leader sees change as an opportunity. A change leader looks for change, knows how to find the right changes, and knows how to make them effective both outside the organization and inside it” (Drucker, 2000 as cited in McKenna, 2006). These words spoken by Drucker were as if they were meant for Mr. Gupta as he reviewed the progress of McKinsey & Co. Growth had been meeting expectations and they were being rewarded handsomely by the market but Mr. Gupta had begun to question whether McKinsey & Co. was, in Drucker’s terms, not just getting things done but getting the right things done.. He questioned, “If this represented the tip of McKinsey’s knowledge and expertise iceberg, how well was the firm doing in developing, capturing, and leveraging this asset in service of its clients worldwide?” (Mintzberg, et al., 2003, p. 319). After all this was the second component of the McKinsey Mission Statement. No where had this rang truer than in the halls of McKinsey & Co. They had experienced tremendous growth and change over the decades and like many others saw their share of recessions but they had continued to grow into their present International stardom in spite of it all.
Drucker, would concur with Mr. Gupta’s questioning their success irrespective of their huge windfalls. He would caution others in that success is not inevitable or forever and can quickly evaporate if one’s focus is not on the right things. Drucker, wrote of the knowledge worker, a description that applied to most, in the 21st century and he spoke of the importance of efficiency but more importantly about getting the right things done. This was the obvious question that was plaguing Mr. Gupta.
He cited three intersecting concerns of the knowledge-driven age that were making the task more difficult and complex. He wondered if his initiatives would be enough. The first concern rests in the amount and rate of change. Second, the increasing expectations and expertise, and finally, the firm’s success itself contributed to the difficulty, in linking and integrating the consultants and the worldwide offices.
Drucker, in writing on what executives must do would applaud Mr. Gupta for his foresight. “Drucker wrote of ‘five habits of the mind’ that executives must acquire”: (a) knowing where their time goes. (b) Focusing on outward contribution. (c) Building on strength- their own and others. (d) Concentrating on the few major areas where performance will provide outstanding results. (e) Making effective fundamental decisions (McKenna, 2006, p. 4).
The outcomes as highlighted above, those stated by Mr. Gupta, along with the Practice Olympics were a beginning and answer to the question of whether McKinsey & Co. were on the right track. They were not only aligned with the five habits as outlined by Mr. Drucker above but were also realigning with the Mission Statement of McKinsey & Co. which stated, “McKinsey Mission: To help our clients make positive, lasting, and substantial improvements in their performance and to build a great Firm that is able to attract, develop, excite, and retain exceptional people” (Mintzberg, et al., 2003, p. 321).
The only additional recommendation not covered in Mr. Gupta’s initiatives but an underlying principle was that growth had made it impossible to link the knowledge and expertise of the organization. This barrier could be easily addressed within the two-tiered career path he proposed. Allowing for ‘intrapreneurship” to flourish and “to let 1,000 flowers to bloom (Gluck, 1991, as cited in Mintzberg, et al., 2003, p. 324) would be a way to not only ensure the future success of McKinsey & Co. but would also be a direct link back to the philosophy of Mr. Gluck, a former and highly successful Managing Director of McKinsey & Co.
This analysis of McKinsey illustrates how MBO can serve as a change agent to help the organization continue to grow in spite of recessions over the years. The implementation of MBO has its negative and positive aspects, yet in a broad since of theories, the positive outweighs the negative. McKinsey is able to live its mission to help clients make positive and lasting improvements while retaining exceptional people.
In conclusion, although the organization grew extremely fast and became victims of technology, the implementation of Peter Drucker’s, MBO could increase the firm’s efficiency for two main reasons. First, it reduces conflict between roles and focuses on results. However, most notably, MBO improves communication, increases motivation and the McKinsey team transforms into snowball makers (practice development) and snowball throwers (client development) worldwide.
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