What Constitutes Knowledge?

In its broadest sense, knowledge for McKinsey comprises any and all attributes of the company that contribute to its ability to create value for its customers and earn revenue by doing so. Such a perspective is consistent with the knowledge based view of the firm which considers a firm as a collection of knowledge based assets and is particularly poignant for consulting firms which have no tangible assets and must create value by successfully transferring knowledge from their organisations to those of its clients. Knowledge exists in both of its primary forms at McKinsey. Type Characteristic Transferability Examples Tacit Knowledge that explains how to do something Must be learned by observation and application and is difficult to transfer Creative analytical abilities and consultants thought leadership Lessons learned from outcomes Specific client knowledge Explicit Knowledge about subjects Can be codified and easily transferred Project implementation plans Generic industry knowledge Table 1: Primary Forms of Knowledge For McKinsey, knowledge is both a product and a production system. Knowledge as Product Knowledge is a product the firm can sell to its clients in order to obtain revenues and it must be developed (generated and captured) in order to maintain value for its customers. Knowledge as Production System Knowledge is a guideline that the firm uses to measure itself and keep itself evolving and acts as a currency amongst employees of the firm with which they can: distinguish themselves from/amongst their peers gain promotion and progress upwards through the firm share to create ideas for new products Planned and Emergent Knowledge Similar to the more familiar conventions for strategy creation (planned and emergent) knowledge is also produced in a clear intentional manner or may be created as a consequence of business as usual. A clear example of this being the McNamara1 model of exploration, exploitation and development which describes how the application of knowledge creates opportunities for learning that increase the stock of knowledge. With McKinsey this is recognised and catered for by the numerous attempts the firm makes to provide mechanisms for knowledge management and the increasing importance that is placed upon them.

How is Knowledge Being Managed Knowledge Divisions within the Firm McKinsey faces a continual struggle with the dynamics of its business environment and the tensions caused by balancing the flexible perspective of general knowledge with the precise application of specialist knowledge. This dichotomy is partly caused by: Constantly evolving client requirements Balancing act between differentiation and integration Natural circularity between explicit and tacit knowledge In terms of how to organise this means the firm is always re-evaluating how it should position itself in order to provide the most applicable product. Mechanisms for Managing Knowledge The design of knowledge management processes must take into account the character of the knowledge to be communicated. The differences in requirements for communicating and transferring explicit and tacit knowledge demand this as well as the dynamics of planned and emergent knowledge and their effects on knowledge management procedures must also be taken into account in system design. As a result, knowledge is managed in a number of ways in McKinsey. We can define management principally as the generation and application2 of knowledge (Figure 1). Figure 1: Knowledge Processes within McKinsey The mechanisms that have been developed by McKinsey are illustrated over time and with respect to increasing complexity and technological advancement (Figure 2). Figure 2: Evolution of Knowledge Management Systems & Initiatives Managing the Knowledge Management Mechanisms Not only is McKinsey managing its knowledge product, it is also constantly redesigning the manner in which it creates its knowledge its knowledge production system. In order to do this, the firm operates a management control system which helps it to continually assess the changing business environment in which it operates and the evolving demands (client expectations) that this environment places upon it. Without such a tracking mechanism, knowledge would go out of date and the firm would become obsolete. The manner in which McKinsey stays in touch with its environment is described using the Control Loop (Figure 3) which illustrates the interactive approach McKinsey uses to monitor its knowledge management mechanisms.

Figure 3: Control Loop At the outset, McKinsey needs to ensure adequate planning is performed for an upcoming period and/or activity, such as moving to an industry based service structure. Following the completion of this step, the plan is implemented. During implementation the status of the initiative is checked to identify variance from the planned performance and if this is significant then a remedial revision may be undertaken. What is McKinseys Competitive Advantage McKinseys competitive advantage is contained within its wealth of tacit knowledge. This is the global network of expertise which can be called upon to generate creative advice on strategic problems. The only way for a competitor to imitate this advantage is to poach consultants from the company. There is evidence to suggest that McKinsey itself cannot capture the full wealth of this knowledge either as the case refers to deep seated suspicion with regard to packaged ideas. An additional advantage is the manner in which McKinsey postures itself as an exceptional firm. The chicken and egg manner in which it defines itself is evidence of this by viewing itself as a creator of exceptional people who will by default create exceptional work the firm is differentiating itself from its peers. What Should McKinsey Do to Maintain its Competitive Advantage The firm needs to keep itself appraised of the forces that act upon its environment and the effects that these have on the service the firm can offer its customers. At the time of the case the three main influencing factors were: Increasing rate of change & volumes of knowledge available Growing client expectations Ensuring the firm does not become a victim its own success (ie: manages growth) In order to meet these challenges, McKinsey should continue to invest the time and attention that it has to date in taking care of its knowledge assets. It must ensure that despite any change it undergoes, the firm updates systems to allow it to continue generating and applying knowledge across the company. It should be prepared to modify its activities in response to new insights and knowledge as they arise. McKinsey needs to become slicker at capturing knowledge. There is a delicate balancing act to perform in providing an environment where knowledge can be captured without placing so much structure on this function that it stifles creativity with rigidity. This is borne out by the partners concern over the dark side of technology which he worries may encourage too much of a people-todocuments knowledge management strategy which could emphasis explicit, codified knowledge and neglect the tacit expertise.

McKinsey must continue to provide a workplace where talented individuals wish to work while supporting multiple career paths as these are supporting aspects of the change efforts considered necessary so the firm can stay ahead. If the alternative career path is allowed to flounder then this could have a negative spiral effect on other change initiatives. McKinsey also needs continue to foster a supportive environment to break down the scepticism (or professional paranoia) that is mentioned with regard to the way in which consultants viewed the knowledge gathering function. Traditionally consulting firms have survived on a stock of tacit knowledge and simply describing the route their clients should take. More often however, clients are requesting explicit knowledge as an additional requirement and strategy implementation has been increasingly becoming a qualifying competency in this industry.