McKinsey & Company: Expansion Strategy

What is the Expansion Strategy of McKinsey & Company according the AAA Triangle Model of Pankaj Ghemawat

 

Introduction

McKinsey has a high commitment with the privacy and it tries to don’t publish any internal information (financial statements, etc) and especially any data about the clients. So the main sources of data for these article are: Wikipedia, HBR Case: “McKinsey and the Globalization of Consultancy" and the HBR Article "Managing Diferences" of the professor Pankaj Ghemawat.


Overview: significant efforts to expand abroad

The Firm is a global management consulting company that focuses on solving issues of concern to senior management. It serves as an adviser to many businesses, governments, and institutions. It is recognized as one of the most prestigious firms in the consulting industry and has been a top employer for new MBA graduates since 1996 .

 

In the past, their consulting competition that was already established: Booz Allen and other competitors that appeared later: AT Kearney –the same year-, Bain & Company, etc. Push the company to increase globally. Also, in order to provide a wide international vision and help for the international and global companies.

As is showed in the next Table "Consultancies before 1973", the increase of international offices was very fast.

The AAA Model: Global Strategy

After have seen the explanation of each “A” of the model in the HBR Article of P. Ghemawat, we are going to analyze each one for this company:

(1) Adaptation

(a) As a firm that provides consulting services, they are totally adapted to their customers’ preferences, so they follow a high adaption global strategy. One example that reflect it, is when the managing partner (during 1950-1957) Marvin Bower saw the need of adaption globally to achieve better the needs of their customers:

(b) “Our clients needed to think globally and to service them properly we needed to think and understand more than America. […] I felt that if we looked at it from the standpoint of the clients, the American companies would want us to help them move into Europe. […] I felt that just as we had become a national firm, so we must become an international firm. The case for international expansion was supported by the rapid growth of American multinational investment after World War II. U.S. manufacturers had built factories in foreign countries since the era of Singer sewing  machines in the second half of the 19th century” .

(2) Aggregation

(a) They have big companies with a global presence. So they can take advantage of serve consulting tasks in many countries for the same international client, as Marvin Bower said:

(b) “In some respects McKinsey had been “pulled” abroad by its clients. In 1954 McKinsey was asked to undertake an organization study for IBM World Trade, the international operating subsidiary of IBM. This exposed McKinsey consultants to the management challenges faced by a major multinational corporation. Even greater formative experience resulted from a request by the chairman of the Shell Group, who had heard of Bower and McKinsey from Texaco’s chairman, to study Shell’s large operating company in Venezuela. It was indicated that this might be a prelude to a study of their whole organization. Shell did proceed to commission McKinsey to investigate its complex organization, which had head offices in London and The Hague. McKinsey advised Shell to adopt the M-form.25 In January 1959 Shell announced publicly that it had accepted McKinsey’s recommendations, which, for McKinsey, provided the ideal context for the opening of the London office.”

(c) However, even they take advantage of this fact; they don’t focus on delivery scale economies because they also have big clients that only work locally, as some banks firms.

(3) Arbitrage

(a) I couldn’t find specifically data that show this fact. So for this, I did a little research which shows that these consulting groups take advantage of arbitrage strategies. For example they outsource many tasks to some departments internally that are in some specifically countries. For example, when they need to developed an internal software or a little application for the customer, a part of outsource to other firms –like Accenture-, normally they also have a office in India focused on that tasks.

(b) Moreover, the know-how sharing though the company and the training. They normally do the internals mini-MBAs –as they named them- in some countries (for example: Bain & Company is used to concentrate all the training of 1st year Assistants nowadays in Brazil)

 

So in summary, with the information we have seen, the current strategy of McKinsey & Company is focused on adaptation and arbitrage, as it is showed in the next diagram.

Their effectiveness is completely great as showed in 3 sources: first, the Vault Ranking said that it is on of the best global consulting firm; second, their financial statements, with a revenue on 2009 of $ 6.6 billion; and finally the evolution of their global expansion. This Table "Consultancies during 1960" shows their performance.

Choice of market entry strategy

Knowing the different expansion strategies, the one probably is going to follow the Firm is an organically development. First, because now are the world leader in their field; and second, because they can’t share information with 3rd parties –in a case of a possible joint venture- (they only outsource some tasks)

So a part of develop organically, they are going to continue increasing their number of offices around the world to be near and more adapted to the customers. And also, they are going to continue searching some possible agreements with the best business schools, recruiting new talent and the possibility of outsource the training –although they have their own research & training department-.

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