Case Discussion: McKinsey & Co. (HBS 9-413-109)/case4_McKinsey & Company.pdf.

Case Discussion: McKinsey & Co. (HBS 9-413-109)/case4_McKinsey & Company.pdf.
1.How was this little firm of “accounting and engineering advisors” able to grow into the world’s most prestigious consulting firm?
2.How does McKinsey differentiate itself? How do these lead to competitive advantages for McKinsey?
3.How sustainable are McKinsey’s capabilities and competitive position in management consulting?
4.Could the Firm continue to grow successfully with its current strategy, organization, and culture? What should be their path forward?
5.What should the Firm’s strategies be for doing business in Greater China? How about globally for the next five years?

Readings: (I will attach to the order)

Grant: Chap. 7 & 8
Christensen, Wang and van Bever: Consulting on the cusp of disruption (HBR, 2013).

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

REV: AUGUST 27, 2013


McKinsey & Company
In early 2013 the leaders of McKinsey & Company were reflecting, as they did periodically, on the
path forward for their Firm. Founded in Chicago in 1926 by James O. McKinsey (Mac), with only a
small staff in one office, the Firm had grown to be a global company with more than 17,000 Firm
members, including more than 9,000 consultants. It was arguably the world’s preeminent
management consulting firm. This case describes the history of events and decisions that led to this
enviable record of success, and poses the questions before the Firm’s senior leaders in 2013. What
should be their path forward? Could the Firm continue to grow successfully with its current strategy,
organization, and culture?

The Early Years
Born on a farm in Missouri in 1889, James O. McKinsey (Mac) was educated as a teacher and a
lawyer and came to Chicago to study at the University of Chicago just before World War I. By that
time he had rejected the law as a career and had been teaching accounting, which he continued to do
as an Assistant Professor at the University of Chicago. When the war started Mac became a private in
the Army Quartermaster Corps, but because of his background was soon elevated to lieutenant and
spent the war years working with material producers to improve their capacity to supply the Army.
This experience, as a successor in leading the Firm, Marvin Bower, later wrote, “opened his eyes to
the need for skilled consultants to help management improve its effectiveness.”1 After the war, Mac
returned to the University of Chicago for six years, wrote a spate of books on all aspects of
accounting, and was named a Professor of Business Policy. But academia did not suit him and he
started his own consulting firm.
At this time management consulting, which was in its infancy, was largely an outgrowth of the
efficiency engineering approaches of Galbraith, Taylor, et al.2 Mac added to this a different tack,
using his accounting background to offer advice about budgeting, cost controls, and accounting,
what came to be called “managerial accounting,” in which the senior managers who became the
Firm’s clients wanted help. Many of the Firm’s early competitors were ephemeral, because they were
so dependent on their founders and therefore unable to be sustained beyond the first generation.3
1 George David Smith, John T. Seaman, Jr., and Morgan Witzel, A History of the Firm, (McKinsey & Company, 2011), p. 19.
2 Ibid., p. 23.
3 Ibid., p. 25.

Professor Jay W. Lorsch and Research Associate Katharina Pick prepared the original version of this case, “McKinsey and Co.” HBS No. 402-014,
which is being replaced by this version prepared by Professor Jay W. Lorsch and Research Associate Kathleen Durante. It was reviewed and
approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School, and
not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.
Copyright © 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 FREE,
write Harvard Business School Publishing, Boston, MA 02163, or go to This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

McKinsey & Company

Mac however attracted a number of partners, who could not only work on the engagements he
found, but also develop clients of their own. By the depth of the great depression in 1932 the Firm
had become a viable entity with two offices, the main one in Chicago and a smaller one in New York,
and with a total staff of 15 consultants.
Among those joining the Firm in 1933 was Marvin Bower, who was to become the Firm’s longest
serving Managing Partner. He graduated from Brown University and then Harvard Law School, and
wished to return to his native Cleveland, Ohio to work for Jones Day, a prominent local corporate
law firm, but was turned down for employment. Determined to join the firm, Bower enrolled in the
Harvard Business School from which he received his MBA. With this additional education he was
successful in joining Jones Day, where he had the opportunity to work closely with the firm’s
Managing Partner. Because of the economic crisis at the time many of the matters Bower worked on
were business related. As he later said,
I realized that my studies of company business and management problems were
amateurish and superficial. I saw the need for a professional firm to handle these problems in
the independent and professional way that we handled legal problems. But I knew of no such
That is until he met Mac in the fall of 1933 through an introduction by a mutual acquaintance. Mac
was sufficiently impressed by Bower to offer him a job as an associate, although Bower did not have
the extensive business experience generally expected of new hires.4 While Bower was impressed by
his new surroundings, he did struggle with Mac’s dedication to having an accounting practice. Bower
was concerned that there was a conflict of interest between auditing and management consulting:
I felt that there was an inherent conflict of interest in a corporation retaining its auditors to
study its management problems. The actual or perceived lack of independence of an auditor
who seeks other income from a client was most troublesome for me. I discussed this problem
with Mac, but couldn’t get him to change his thinking.
Nevertheless in late 1934 Bower was offered the position of manager of the New York office. As
part of this arrangement he and Mac agreed that there would be no accountants in New York.
Progress in New York was slow and Bower’s time there was frustrating. In May of 1935, Bower fired
off a memo to Mac in Chicago, which barely masked his irritation. He complained that the New York
office was being starved because of a lack of staff resources.5 The response from Chicago is lost in
history, perhaps because at about the same time Mac and the consultants in Chicago began
conducting the Firm’s most prestigious engagement to date—at Marshall Field’s, Chicago’s most
important department store. The study not only earned favorable publicity for McKinsey, it arguably
changed the course of the Firm’s history. For one thing, the publicity attracted a number of merger
proposals from other firms, and more importantly led to Mac being offered and accepting the
position of CEO of Marshall Field’s.
This decision posed two significant challenges for McKinsey, and Mac himself: who was to lead
the Firm and replace Mac as the primary source of new business; and how to handle Mac’s large
ownership stake? No one in the Firm at the time, including Bower, had the experience or reputation
to replace Mac. Even though he was joining Marshall Field’s, Mac wanted to see the Firm that he had
invested so much effort in survive.6 The solution was a merger with Scovill, Wellington & Company,
4 George David Smith, John T. Seaman, Jr., and Morgan Witzel, A History of the Firm, (McKinsey & Company, 2011), p. 27.
5 George David Smith, John T. Seaman, Jr., and Morgan Witzel, A History of the Firm, (McKinsey & Company, 2011), pp. 29-30.
6 Ibid., p. 43.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015
McKinsey & Company


an accounting and management engineering firm. Two separate partnerships, both led by Oliver
Wellington, were formed. Bower who was not enthusiastic about the merger, but went along with it,
was named the number two leader in the New York office, responsible for day-to-day matters. An
advantage of the merger for the McKinsey consultants was the Scovill, Wellington list of clients that
included U.S. Steel, which also stimulated growth in the Chicago office. A large U.S. Steel
engagement provided a fine medium for the consultants from the two firms to learn to work
together. The only problem was that the project was so large it dominated the Firm, and when the
engagement was terminated prematurely in 1937, the results were almost crippling, prompting
layoffs and exposing tensions between the two sides that had been hidden before. As Bower later
The McKinsey-Scoville merger was a dual shotgun marriage with Mac holding one gun to
the McKinsey people and Oliver (Wellington) holding the other to his people. Like so many
shotgun marriages it lacked love—the essential ingredient for a successful marriage and so
contained the seeds of its own destruction.7
Over the next couple of years, Mac himself, still CEO of Marshall Field’s, became involved in
attempts to resolve these issues. These efforts ended when he died unexpectedly in November of
1937. The consequences of this tragedy were twofold. First, executives at Marshall Field’s who had
held many resentments against their CEO felt free to express their criticism publicly, which was
damaging to the Firm’s reputation. Second, it enabled Bower to dethrone Oliver Wellington. This in
turn led to the dissolution of the Wellington partnership and the eventual reemergence of McKinsey
& Company as an independent partnership under the leadership of Bower and Guy Crockett (who
came from Scoville, Wellington and put up $28,000 as his share of capital). Thus McKinsey &
Company was born again.8

Developing a Strategic Focus
During the Second World War McKinsey grew rapidly, to 68 consultants by 1946. However most
of the work was shop-floor problem solving, which was inconsistent with Mac’s original vision of the
Firm’s mission to focus on top management problems.9 That the Firm was able to refocus on this
original intent after the war was due to the tenacity and hard work of the Firm’s two senior partners,
Crockett and Bower, and their colleagues. Bower recalled:
We had established in our minds, the goal of becoming the leading management consulting
Firm in the U.S. We agreed that meant being a large firm—with multiple offices—but not
necessarily the largest and being known as favorably as any other firm in our field for the
quality of our work, the prestige of our clients, our professional standing, and the caliber and
competence of our consulting staff. We agreed also that in order to attract, hold, and motivate
high-caliber consultants we must be an economically stable firm. Achieving economic stability
required in turn charging higher fees than we and other firms were charging. We wanted to
build a firm that would continue in perpetuity. This goal required every individual to protect
and build the Firm’s future and reputation so that each generation of partners would pass the
Firm along to the next generation stronger than they had found it.

7 Ibid., p. 48.
8 Ibid., p. 63.
9 Ibid., p. 68.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

McKinsey & Company

During this same period some partners wanted to develop a brochure to explain the Firm’s
approach to potential clients. A central goal was to explain that McKinsey did not replace
management, but supplemented it. Bower at first objected to the idea, at least partially because of his
commitment to McKinsey as a professional firm, and professional firms didn’t advertise. Eventually
he was persuaded, as he explained:
I soon saw a hidden value in this effort—a means for bringing our own thinking together
before we published it to others. We decided that every partner should agree with
substantially every word. Although that meant many drafts and took nearly a year the final
product was a true collective effort. We produced a hardcover 42-page beautifully printed
book, entitled “Supplementing Successful Management” (the high cost of production: 35 cents
per copy). The initial printing in 1940 was 2,000 copies, but it continued to be used for the next
decade. The by-product of this rigorous effort proved to be even more important—we had
genuine agreement on the kind of firm we wanted to be.10
This effort also became a template for later efforts to achieve consensus among partners on
strategic direction as the Firm grew.
The brochure also outlined the services McKinsey offered clients in organization, planning,
marketing, distribution and merchandising, manufacturing and operations, management controls,
office plans, warehouse operating methods and procedures, personnel and management relations,
and financial planning. Lest potential clients think McKinsey was just another management
engineering consultancy, all expertise was designed to serve “top management on problems of
importance to top management.”11 To this end, the Firm’s “General Survey was touted as a unique
diagnostic methodology, a comprehensive and objective analysis to identify significant problems and
major opportunities for profit improvement, for progressive executives seeking to make a successful
business even more profitable.”12 While the specific areas in which the Firm offers advice and counsel
have evolved over the years as business issues have changed, what has not changed is the
unrelenting focus on offering advice only on top management issues for important companies.
Another key strategic element for McKinsey, initiated in the 1950s, was “value billing.” Everett
Smith, a partner at the time, apparently conceived this approach. He ignored his team’s time sheets
and decided, as he put it, to “bill what we think is of value to the client. In other words forget the
diary, forget the calendar and charge for what we did this month that was worthwhile for that
company.”13 Forty years later Ron Daniel, the Firm’s second longest serving Managing Director,
explained this billing policy to a group of new associates:
McKinsey is a high price, high value consulting firm of which everyone should be proud
because it involves great professional obligation to the client, a promise that had to be met.
High fees are a warranty on the impact needed to justify them.14
Another enduring element in McKinsey’s strategy was the Firm’s approach to geographic growth.
From two offices in Chicago and New York in the 1940s the Firm had expanded to 102 offices around
the world in 2013. Initially, the growth was in the United States; in the late 50s and 60s it was in
Europe and ultimately in every inhabited continent (see Exhibit 3 for McKinsey’s Global Locations).
10 George David Smith, John T. Seaman, Jr., and Morgan Witzel, A History of the Firm, (McKinsey & Company, 2011), pp. 77-78.
11 Ibid., p. 77.
12 Ibid., pp. 77-78.
13 Ibid., p. 94.
14 Ibid., p. 235.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015
McKinsey & Company


After the dissolution of the Scoville merger, the Firm had to reestablish a national presence which it
did by opening an office in San Francisco in 1944, reentering Chicago in 1949, and then opening an
office in Washington D.C. in 1951. McKinsey’s steps abroad took more time. Initially the Firm did
engagements for the international arms of U.S. companies, e.g., IBM. There was, at the time, much
internal debate among the senior directors about the desirability of expanding internationally,
including Bower who had made a number of exploratory trips to Europe under the guise of vacations
with his wife. While the discussion continued, and internal studies were undertaken to understand
the competitive markets in the U.S. and Europe, as well as the potential availability of talent in
Europe, the Firm had been engaged by the Royal Dutch Shell group to study its organization in
Venezuela. This study went very well and the Shell group then engaged McKinsey to undertake a
massive study of its global organization. This was the push the Firm’s leaders needed, and they had
an internationally-inclined partner in Hugh Parker to lead an overseas office that was opened in
London in March 1959.
From this time forward, McKinsey followed an approach to global expansion, which Bower and
other McKinsey directors labeled “planned but opportunistic.”15 McKinsey’s directors had a vision of
growth but no specific plan. They would learn as they went forward, looking for opportunities and
adapting to the circumstances they found. A director, Dick Neuschel, told the annual partners
conference in 1957:
The Firm has had its greatest success when it has set objectives on expanding our practice
but then moved toward them opportunistically in terms of client opportunities and availability
of qualified people. The opposite approach is to open offices by calculated design or artificial
forcing—that is, by deciding that we ought to have an office in a given city and then selecting
the most willing, available person to undertake the assignment. Our own experience and the
experience of other firms showed that the casualties of this sort of cold-blooded approach can
be very, very high.16
This approach to expansion did follow a set of carefully thought out principles. The first of these
was that there had to be a sufficiency of potential clients, including, ideally, some with whom
McKinsey had already worked. Second, and even more important, there had to be experienced
McKinsey partners who were willing to take the leadership of the new office. Similarly, there had to
be an adequate supply of experienced associates and younger partners to form a nucleus of
consultants for the new office. The importance of having an adequate supply of partner talent led to
what Ron Daniel labeled “Step Function Growth”:
Historically the Firm has tended to grow in step functions. Following a pattern that was
typical well into the 1990s, the Firm would grow, pause as if to consolidate its growth and
catch its institutional breath, and then expand again. This pattern was largely a result of how,
as the Firm grows, its partner resources become stretched relative to the newly attained size of
the enterprise…Sustained growth in the number of consultants at 10% to 15% per year without
interruption simply doesn’t work for us. We need periods to harvest our gains and prepare
ourselves for the next period of growth.17
Looking to the future the Firm’s leaders recognized that growth in size (offices, and/or personnel)
could lead to a bureaucratization of the organization which would damage the Firm. Daniel used a
metaphor to describe this concern:
15 Ron Daniel, Daniel on McKinsey, (McKinsey & Company, 2012), p. 159.
16 Ibid., p. 123.
17 Ibid., p. 87.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

McKinsey & Company

Growth is an important issue…its importance has largely to do with how individuals feel
about their opportunities to become partners of the Firm. We might think about it
metaphorically. Imagine that the partners’ table at the Firm is of infinite size. To be worthy of
election one only has to bring his or her chair to the table. In fact the feeling and ambiance
within the partnership has changed with growth. The atmosphere is different with 1,500
partners than it was at 20 or even 300, and it will feel different when the partnership has
reached 2500 strong or more. Sooner or later we shall reach that size. It will be incumbent on
the leadership of the Firm at that time to figure out how to cope with a group of that size and
how to respond without lapsing into a corporate or bureaucratic culture. It won’t be easy, but I
am confident future generations will find appropriate answers.18
The Firm’s record of growth in size and global expansion suggests that so far Daniel’s optimism was
justified. In early 2013 the Firm had 900 principals and 450 directors. In June 2013, 63 new directors
were elected.

Developing and Sustaining Talent
A critical condition for growth had always been how to recruit and develop the consulting talent
to serve clients and to lead the Firm. Initially Mac had relied on finding experienced executives, who
wanted to use their experience and knowledge as consultants. In 1953, Bower and the Firm’s other
leading partners began to take a quite different approach, recruiting two Harvard MBAs in 1953, six
in 1959, and sixteen in 1966 because the experiment had been validated. The recruiting of MBAs from
various American business schools continued as the Firm expanded. Bower justified this new
approach by arguing that it was easier to develop young talent, hiring smarter and younger people
and training them, than it was to change the habits of experienced executives. He borrowed this idea
from his experience in the law.
The first step in the talent building process was to select those who were best suited to life as a
McKinsey consultant. The process of selection was, and still is, carried out by consultants. Screening
of resumes and initial interviewing was often carried out by non-partners (associates), but as the
candidates were winnowed down, partners were involved in the later rounds of interviews and final
decisions. For the McKinsey partners, talent was what mattered most. As Ron Daniel expressed it:
The real competition among consulting firms is for talent, not clients. If we win the war for
talent, we’ll win in the marketplace for clients. This proposition has been proven over and over
again throughout the world.19
As the Firm grew, especially internationally, the American business schools were no longer
sufficient as the sole source of talent. Other sources were needed and McKinsey spread a wider net,
looking for young people with PhDs and other professional degrees as well as more experienced
associates from industry. As Daniel went on to explain,
We’ve always uncovered new and unusual sources of talent—sometimes by necessity. For
example in Germany there were no business schools…and the smartest young people usually
studied science, engineering, or law. We recruited these people and trained them to be
business problem solvers. We introduced a mini-MBA program in 1977 for associates who had
not graduated from business schools. We still offer the mini-MBA, albeit with a somewhat
18 Ibid., p. 90.
19 Ibid., p. 38.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015
McKinsey & Company


different and shorter curriculum than 30 plus years ago. We are one of the world’s largest
recruiters of Rhodes Scholars at Oxford. In some years we have recruited more Yale and
Harvard Law School graduates than some of the top law firms. No other company exerts the
effort we do to find talent. While we may scale back as economic conditions shift, at our
current scale every year we hire about 2400 newcomers—associates, BAs, and summer
associates. This is an awesome challenge.20
As the Firm entered the 21st century, it had time-tested processes for selecting and developing
new associates. They were hired with the expectation that they would succeed over the long term.
The hiring decisions for new associates were made primarily by the individual offices, although
occasionally a practice area could and would hire new associates. Each new associate was assigned a
development group leader, a partner who acted as his/her mentor. Typically a development group
leader had six or seven associates assigned to her. There was not only formal training as associates
entered the Firm, but even more important in the view of the partners was the experience and
knowledge associates gained as they worked on client engagements. In fact a key responsibility of
each engagement director was to make sure that the associates on his or her project were learning and
developing as they contributed to the project. It was the responsibility of development group leaders
to communicate regularly with their associates about how they were performing. It was also their
responsibility to communicate to others in the Firm any concerns the associate might have about his
or her progress.
The life of the associates was demanding, with a lot of travel and long hours, but for many, if not
most, the work was rewarding. After about two years successful associates were named engagement
managers, indicating that they had major responsibility for a client engagement. A few years later
successful engagement managers were nominated by their office to become associate principals. This
recommendation went to a committee of partners (principals and directors) at the regional level.
Associate principals shared in the Firm’s profits and were entitled to attend regional partner
meetings and to have a “say” in regional matters.
When the partners in an associate principal’s office, or practice, believed he or she was ready for
promotion, she would be nominated to become a principal, the first of two levels of partnership. A
worldwide committee of principals and directors (the senior partners) made decisions on these
When the principals had demonstrated further abilities, they were eligible for election as directors.
Each principal wrote a self-evaluation of his accomplishments and was assigned a director, who was
his evaluator, and who was from a different geography and did not have a personal or professional
relationship with the candidate. The goal was to achieve an independent evaluation. The evaluator
was expected to do a thorough and independent assessment of the candidate and his self-evaluation
by talking to people who knew him and his work, and then to make a recommendation to the 26
person partnership committee (made up of directors), who made the final recommendation to the
Shareholders Council. The partners who engaged in mentoring, evaluating, and serving on the
decision-making committees for these personnel matters were all expected to do this work, while
they also served clients. If a candidate for director was turned down, she might be encouraged to
stay and improve her record, or at that point might be told that they “would be more successful
outside the Firm.”
For those associates or principles who were not happy at McKinsey and/or were not performing
up to the Firm’s expectations, partners worked informally to help them find alternative employment.
20 Ibid., p. 38.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

McKinsey & Company

In fact the success rate of entering associates was such that many of the young associates entered the
Firm expecting to learn and develop their skills, but recognizing that their likelihood of success to
become a principal was low (between one in five and one in six entering associates became
principals). As these professionals left the Firm they found other interesting opportunities, often with
the help of partners and built successful careers. The Firm viewed its 26,000 alumni as a strategic
asset and developed a large and sustained effort to maintain connections with its alumni. This meant
creating a data base accessible to all alumni about the status of individuals, leveraging a number of
social media web sites to link alumni, active outreach through formal alumni programs and
gatherings throughout the global Firm, and establishing a McKinsey intranet job search program.
Those who succeeded in becoming directors obviously were expected not only to continue and
expand their successful work as principals, but were also entitled to vote in the election of the Global
Managing Director (informally referred to as the Managing Partner), to serve on director-only
committees and attend director-only gatherings. Each director was evaluated biannually by the
Directors Committee. A director’s compensation was surprisingly not determined by his/her billings,
or level of client service. In fact, it was not considered positive to be too commercial. The more
important questions which were asked in such evaluations were: “What is the quality of your client
relationships? Are we doing good work for these clients? Are we changing the direction of the client’s
business in a positive way?” Directors were also judged on the extent to which they were adding to
the intellectual capital of the Firm. Finally, directors were judged on how well they were doing in
developing new talent and getting them promoted. Directors could retire at 55 and were given a
financial incentive to do so by the age of 60. In fact only a few directors had stayed on beyond that
Another important feature of McKinsey’s approach to talent development and management was
the conviction that all professionals, partners and non-partners alike, were encouraged to accept
assignments anywhere in the world, and to be willing to accommodate the Firm’s needs.

Firm Organization and Management
McKinsey was led by a Global Managing Director elected by all of the other directors (see Firm
Governance below). The two longest serving Global Managing Directors have been Marvin Bower
(1950-1967) and Ron Daniel (1976-1988). The Firm is organized into a three dimensional matrix
structure: geography; industry and functions (see Exhibit 4 for list of industry practices and
functional practices). There were also three regional coordinators (Americas, Europe, and Asia), one
head of the industry dimension, and one head of the functional dimension. The Global Managing
Director selected these individuals as well as a CFO, usually a director who also continued to serve
clients, as well as a human resource head, most often a former client-serving principal or director.
In addition to these positions there were the office managers, who were also selected by and
served at the pleasure of the Global Managing Director. According to McKinsey leaders, the office
managers were the key link in the management of the Firm. Office performance was judged in
several ways. One set of measures was economic performance (relative to other offices) in terms of
expense management and contribution to the Firm’s overall P&L. While economics and billings were
managed in large part through the offices—the offices’ focus was more on people development and
outreach to clients. Additionally offices were judged in relation to the level of internal collaboration,
teamwork with other offices, and the importance of the office to its local community. These
assessments were done by the regional leaders in their geographies and were made constantly and
routinely. If a problem was identified in an office, the most likely solution was a change in office
This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015
McKinsey & Company


When new offices were being opened and initially established they were viewed as an investment
with longer-term payouts. Consequently they were judged on the caliber of their staff, how well they
were growing, and most importantly, perhaps, their success in developing people. The performance
of the Firm as a whole was rarely discussed formally outside the Shareholders Council—effectively
the Firm’s board of directors, made up of 30 directors plus the Global Managing Director.

Firm Governance
McKinsey was initially created as a partnership. However in 1956 it was legally changed to a
private New York corporation with the restriction that the shareholders (directors and principals)
could only sell their shares to each other or to the Firm. By 2013, the idea of actually transferring
shares had disappeared and the partners referred to “shadow equity.” An important rationale for
maintaining the corporate form was the flexibility it provided in dealing with the many different tax
regimes around the world. Although legally a corporation, the Firm was managed like a partnership.
Evidence of this was prevalent in many aspects of the Firm’s governance, but nowhere was it clearer
than in the method for selecting the Global Managing Director.
He or she was elected by the directors to serve a three year term, and could be reelected for up to
three terms, but could be no older than 57 at the start of a third term. The actual process of election
was straightforward and was overseen by three retired or ineligible directors. They managed the
process and made sure any candidates receiving votes were willing to serve. A computerized
nomination ballot of all directors eligible for election was sent to all directors. Directors were asked to
rank order their top five picks to be the next Global Managing Director. A second list of the top
seven candidates was subsequently sent to all the directors, unless someone had already received a
majority of votes. The process was continued until one of the two remaining candidates received a
majority. The candidates were allowed to circulate a biographical statement, but campaigning was
strongly discouraged. Discussion of candidates among directors, however, was encouraged.
As mentioned earlier, the Firm was governed by a number of committees of directors, e.g. the
Principals Committee and the Directors Committee (see Exhibit 1 for List of Committees). The
members of all committees were selected by the Global Managing Director. While all these
committees played important roles in Firm governance, a critically important committee was the
Shareholders Council. Its members served a three year term and were limited to two such terms. This
was the ultimate policy-making body of the Firm.
The Firm’s compensation plan started with the premise that director compensation should be
based on an evaluation by one’s peers. Each director’s total compensation was the result of several
independent factors and decisions. The primary factor was his or her ranking along a number of
performance dimensions, e.g. client impact, talent development, Firm service etc. For newly
promoted directors, tenure was also taken into account in the first few years to ensure that
performance was on a sustained basis.

McKinsey’s Core Values and Principles
While the Firm’s leaders recognized the importance of McKinsey strategy, structure, practices,
and governance, they were convinced that the Firm’s success was also importantly attributable to
another factor. This was its continuing dedication to a set of core values, first articulated by Marvin
Bower and his colleagues in the Firm’s earliest years. These were still the bed rock of what the Firm
stood for in 2013 and appeared on the desktop of every PC in the Firm (see Exhibit 2 for McKinsey’s
This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

McKinsey & Company

core values). Any observer of McKinsey professionals in action quickly understood that these
principles were more than historical artifacts; they were alive and well in the 21st century.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015
McKinsey & Company

Exhibit 1


List of Committees

Strategy and organizational change at the Firm are decided by committees and task forces. The major
established committees include:

Shareholders Council
Client Committee
People Committee
Knowledge Committee
Finance and Infrastructure Committee


Personnel committees:
Principal Candidate Evaluation Committee
Lower-Tenure Principals Committee
Upper-Tenure Principals Committee
Directors Committee

Source: Compiled from McKinsey & Company, company documents, May 2013.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

McKinsey & Company

Exhibit 2

McKinsey’s Core Values

Our Values
Adhere to the highest professional standards
Put client interest ahead of the Firm’s
Observe high ethical standards
Preserve client confidences
Maintain an independent perspective
Manage client and Firm resources cost-effectively
Improve our clients’ performance significantly
Follow the top-management approach
Use our global network to deliver the best of the Firm to all clients
Bring innovations in management practice to clients
Build client capabilities to sustain improvement
Build enduring relationships based on trust
Create an unrivaled environment for exceptional people
Be nonhierarchical and inclusive
Sustain a caring meritocracy
Develop one another through apprenticeship and mentoring
Uphold the obligation to dissent
Govern ourselves as a “one-Firm” partnership

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015
McKinsey & Company

Exhibit 3


McKinsey’s Global Locations: Office Openings Throughout the Years

McKinsey office openings



New York

Angeles 1


San Francisco


Washington, D.C. Cleveland

Mexico City

Hong Kong
São Paulo
Silicon Valley

Regional development



South America

Eastern Europe
Southeast Asia
Middle East




Buenos Aires
Kuala Lumpur
New Jersey
Orange County 1
Rio de Janeiro

Tel Aviv

San Juan

1 Los Angeles and Orange County are now Southern California
2 No longer an office

McKinsey & Company | 0

Source: McKinsey & Company, “Office Openings Throughout the Years,” March 2013.

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.

For exclusive use at HONG KONG UNIVERSITY OF SCI AND TECH, 2015

McKinsey & Company

Exhibit 4

Industry Practices and Functional Practices

Industry Practices: There is no substitute for knowing an industry inside and out. Organizations need
to track competitive dynamics, regulatory changes, and advances in technology to compete and
thrive in their sector. Our consultants draw upon years of direct, front-line experience as well as deep
industry knowledge to ensure our clients’ success.

Advanced Electronics
Aerospace & Defense
Automotive & Assembly
Consumer Packaged Goods
Electric Power & Natural Gas
Financial Services (Banking, Insurance, Asset Management)
Healthcare Systems & Services
High Tech
Media & Entertainment
Metals & Mining
Oil & Gas
Pharmaceuticals & Medical Products
Private Equity & Principal Investors
Public Sector
Pulp & Paper/Forest Products
Social Sector
Travel, Transport & Logistics

Functional Practices: Excellence in functional disciplines can make or break an organization’s ability
to keep up with the pace of change. From strategy to operations, we are committed to helping our
clients build their functional skills and boost performance for the long term.

Business Technology
Corporate Finance
Marketing & Sales
Sustainability & Resource Productivity

This document is authorized for use only in Strategic Management by Prof JT Li, HONG KONG UNIVERSITY OF SCI AND TECH from September 2015 to December 2015.