Essay \'\' McKinsey & Company: An Examining of the Knowledge Management \'\' - By Student No: 8055527 - Accounting & Finance PDF

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KNOWLEDGE MANAGEMENT STRATEGY

Title: McKinsey & Company: An Examining of the Knowledge Management

Prepared for

The University of Manchester

MANCHESTER BUSINESS SCHOOL Ref: BMAN20922

By Student No: 8055527 May – 2014

Keywords: Knowledge Management Systems, Organisational Learning Frame Works, Organisational use of IS Concepts, Competitive Advantage Strategy, Theory of Knowledge

Word Count: 1980

Table of content 1. INTRODUCTION………………………………………………….Page. 3 1.1.

Industry Background………………………….………...……………………….Page. 3

1.2.

Company Overview………………………….………...…………………….…. Page. 3

1.3.

Aims & objectives………………………….………...………………….……….Page. 3

2. LITERATURE REVIEW.………………………….………………Page.4 3. RESEARCH DESIGN……………………………………………...Page. 4 4. FINDINGS, DISCUSSION & ANALYSIS ……………….……….Page. 5 4.1.

Data, Information, Knowledge, and Wisdom………………………………..…….....Page. 5

4.2.

Dominant View of Knowledge…………………………………………….….………..Page. 5

4.3.

Knowledge Types……………………………………………………………….…...…..Page. 6

4.3.1 4.3.2 4.3.3 4.3.4

Explicit Knowledge……………………………………………………………………..…....Page. 6 Tacit Knowledge……………………………………………………………………….….….Page. 6 Mckinsey: Explicit & Tacit Knowledge…………………………………………...…...,....Page. 6 Mckinsey: Features Of Explicit & Tacit Knowledge…………………….………..…..,….Page.6

4.4.

General Approach to Knowledge Management…………………………….……....Page. 6

4.5.

Knowledge Management Systems………………………………..……..…….…..…..Page. 6

4.5.1.

Knowledge Resource Directory………………………………………………………...….Page. 6

4.5.2.

Practice Development Networks………………………………………………….………..Page. 6

4.5.3.

Web 2.0……………………………………………………………………………….…….....Page. 6

5. RECOMMENDATIONS & CONCLUSION …………….……….Page. 7

6. BIBLIOGRAPHY…………………………………………………......…..... Page. 8

Word Count: 1980

1. INTRODUCTION 1.1.

Industry Back ground

Management consulting firms are concerned with providing a solution or advice for a specific problem that an organisation has encountered; which could include making certain aspects of an organisation more efficient and effective, thus helping them to improve their overall performance. The method of finding solutions to organisational problems can differ between consulting firms. For example, some firms tailor solutions to meet their client’s needs using predominantly tacit knowledge that the consultants have gained through experience within the industry. Conversely, other firms use predominantly explicit knowledge that is readily available on the company databases or on various other sources, which can be bought together for a tailored solution. Therefore, organisations hire the services of management consultants for a number of reasons, however, it is primarily for gaining external (and presumably objective) advice and access to the consultants’ specialized expertise. 1.2.

Company Overview

McKinsey is one of the largest consultancy firms in the world. Serving numerous clients of the fortune 1000. The company was founded in the United States in 1926 by James O McKinsey. Marvin Bower took over in 1937 after McKinsey’s death with the same goal of keeping clients’ interests first. In the 1960s business took off with overseas expansion and the first printing of the McKinsey quarterly journal. However in the 1970s in response to business trouble the company began to invest in its own Knowledge Management practises. Growth continued throughout the next two decades with technological advancements and globalisation. In recent years the business has been up and down with the financial crisis but McKinsey has continued to diversify its services in new industries and maintained its leading problem solving reputation. 1.3.

Aims & Objectives

This report seeks to: 

Understand the process of knowledge management within McKinsey



Evaluate the effectiveness of their knowledge management strategies



Critically analyse their Knowledge management strategies using various models and frameworks.



Recommend solutions to the problems that are raised in the critical analysis

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2.

LITERATURE REVIEW

Multiple systems and procedures related to knowledge management are discussed in; books, technical papers, and articles. This report has looked closely at the development of McKinsey’s knowledge management systems; and to further understand them the paper has used conceptual approaches and experiences that have occurred in this field of expertise. This report incorporated the following literature:  Polanyi (1967); Hu (1995); and Nonaka and Kanno (1998) all explain that tacit

knowledge is non-codified, for example it is skills and experience of employees. Furthermore, they explain that explicit knowledge is codified, for example, documents, codes and tools. Therefore they give a further understanding to the contact of knowledge management.  The articulation of knowledge management is examined and explained by Spender

(1995); which states that tacit knowledge is difficult to understand and explicit is easy to understand.  Polanyi (1958, 1967), explains where knowledge is located, for example, tacit

knowledge is located in human brains (of individuals) and explicit is located on documents and databases.  Ambrosini and Bowman (2001) further explain that communication for tacit knowledge

is difficult, conversely the communication of explicit knowledge is easy.  Boje (1991), Connell et al (2003), and Johannessen et al, (2001) all explain that trans fer

(media) of tacit knowledge can only be done through face- to-face contact, for example, storytelling. Whereas for explicit knowledge it can be transferred using informa tion technology and other archives.  Boiral (2002) and Connell et al., (2003) further explain that it is difficult to store tacit

knowledge and easy to store explicit knowledge.  Lastly, Hansen et al., (1999) explains the differences between the two main knowledge

management strategies. The strategy for tacit knowledge being the personalisa tion strategy and the strategy for explicit knowledge is the impersonalisation strategy. *** Word Count: 1980

3. RESEARCH DESIGN & PROCEDURE The research was carried out by using primary and secondary academic literature. The primary literature consists of primarily company and academic reports. Whereas the secondary literature consists of books, journals and peer reviewed research papers. The use of these two types of literature will facilitate in the analysis of McKinsey’s knowledge management through the adaption of conceptual frameworks.

4. FINDINGS, DISCUSSION, & ANALYSIS

4.1. Data, Information, Knowledge, & Wisdom

The DIKW Pyramid seen in figure

DIKW Pyramid

1 represents the

relationship between data, information, knowledge, and wisdom. Typically, information is defined in terms of data, knowledge is defined in terms of information, and wisdom is defined in terms of knowledge (Rowley, 2007). Data is defined as “discrete, objective facts or observations, which are unorganised and unprocessed and therefore have no meaning or value because of lack of context and interpretation” (Rowley, 2007). Therefore information is simply data that has been ‘processed and organised’ which can then be learned, used, and interpreted in the form of

Figure 1 Source: Cleveland (1982)

knowledge. Finally wisdom is the mental function that is notably acknowledged as judgment and is characteristica lly inherent. McKinsey consultants process data into information and then informant into knowledge which is intertwined with individual experiences to become wisdom. This makes McKinsey’s knowledge difficult to exchange between consultants. Nevertheless, knowledge exchange at McKinsey is carried out through informal group meeting and other direct means of communication such as phone calls and fa ce-to-face interaction (McKinsey Quarterly, 2009). Word Count: 1980

4.2.Dominant view of knowledge Firms can view knowledge from two perspectives, the possession based perspective and the practice based perspective. The Possession based perspective regards knowledge as an entity or object that can exist separate from people via codification (Schultze and Stabel, 2004). It argues that knowledge can be separated into two forms, tacit and explicit and that knowledge can exist as an object. It also takes a positivistic philosophy, that knowledge is a fact, valuing explicit form over tacit form and also that knowledge is derived purely from intellectua l process. The Practise based perspective views knowledge in terms of knowing and argues that knowledge is inseparable from human activity. From the practice perspective explicit and tacit knowledge are intertwined and that knowledge is embedded in practice. McKinsey’s dominant view of knowledge is the practice based perspective, stating that ‘complex interactions occur, and that there are no rule books to follow, therefore employees must draw upon deep experience which is referred to as tacit knowledge’ (The McKinsey Quarterly, 2004 Number 3, pp. 100–11). *** 4.3.Knowledge Types 4.3.1. Explicit Knowledge Explicit knowledge is easy to articulate. It is methodically and systematically expressed as numbers, words or codes. When necessary it can be easily shared and distributed as it is processed by and disseminated with information communication technology. Therefore this type of knowledge can be found on the internet, in books, on data bases, as well as within other visual and oral means.

4.3.2. Tacit Knowledge Tactic knowledge is inherent with an individual’s insight, ideals, and values. Essentially it is the knowledge that is possessed by people in their minds, therefore it is difficult to access and articulate with formal language. Michael Polanyi explained tacit knowledge in his book The Tacit Dimension as ‘we know more than we can tell’.

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4.3.3. McKinsey: Explicit & Tacit Knowledge McKinsey is based on tacit knowledge, as their consultants specialise in using a personaliza tio n strategy to tailor solutions to meet their clients’ needs (Hansen et al.). However, unlike what is widely assumed, McKinsey also use explicit

SECI Model

knowledge as they codify a large fraction of their knowledge, systems

such

using

knowledge

as the

Practice

manageme nt Development

Networks (PDNet). The concept of using both tacit and explicit knowledge can be further understood using the SECI model in figure 2. At McKinsey, tacit knowledge is created at the socialization stage through the sharing of experiences. Consultants usually meet face- to-face during informal meetings

Figure 2 Source: Adapted from Nonaka & Takeuchi, 1995

where they can brainstorm together so that they can construct the best innovative solution for their clients. McKinsey then take the knowledge that they have created and externalize it by publishing some of the information in the McKinsey quarterly journal, and the rest of their inhouse KMS’s such as the KRD and PDNet. Then the explicit knowledge can be combined with other explicit knowledge that exists on the PDNet to create new, more precise, and relevant explicit knowledge, that can be disseminated among members of the organization. Finall y, during the internalization stage employees use explicit knowledge to make new connections and recognise new or missed patterns which could include the capacity to make sense of material between fields, ideas and concepts. 4.3.4.

McKinsey: Features of Tacit & Explicit Knowledge

*** Word Count: 1980

4.4.General approach to knowledge management In reference to McKinsey’s approach to knowledge, the personalisation strategy prevails over the codification strategy. They consider their competitive advantage to come from the creation of knowledge and not from its reuse. McKinsey consultants consider their work as highly creative since they aim to provide clients with personalised solutions adapted to their needs. When it comes to knowledge sharing McKinsey employees prefer face- to-face interactio n rather than knowledge through codification. As a result the implication this has on HRM is that social networks and interpersonal skills are given priority over IT skills (Newell et al, 2009, ch.6). The dominant approach to knowledge management is the behavioural one which consists of managing knowledge through people practises rather than IT systems. The dominant school is the organisational school whose main concern is the development of interpersonal networks. At McKinsey, team work plays a key role and teams are based on diversity. Employees are also encouraged to join a network such as the women’s network, the black consultant’s network and the Hispanic network, as result trust and collaboration among co-workers is developed. McKinsey can also be studied through the strategic school which relies on shaping behaviour into being aware of the importance of knowledge sharing. This is illustrated in McKinsey’s training programs which aim at developing interpersonal skills and encouraging, knowledge sharing. The technocratic approach focuses on the role of IT systems, and in McKinsey’s case this is best embodied in the cartographic and systems schools. The cartographic aims at putting in place searchable directories of expertise which McKinsey have done through the knowledge resources directory. However such initiatives have not been very successful as they contradict the company’s culture. The commercial approach to knowledge is concerned with effectively commercialising the companies’ knowledge. This can be seen in McKinsey’s publicatio ns; McKinsey Quarterly and McKinsey Global Institute which store industry insight and are distributed to clients.

4.5.KNOWLEDGE MANAGEMENT SYSTEMS 4.5.1. Knowledge Resource Directory (KRD) -

The Knowledge Resource Directory (KRD) became the McKinsey Yellow Pages (it is a listing of all the firms’ experts and key document titles by practice area and published in a small book compact enough to fit in any consultant’s briefcase.

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4.5.2. Practice Development Networks (PDNet) -

PDNet is a computer based practice development network that was built by McKinsey using 2,000 documents that were collected and represented their core knowledge.

4.5.3. Collaboration 2.0 McKinsey’s knowledge exchange has benefited greatly with the introduction of Web 2.0, which is also commonly known as Collaboration 2.0. The advancement in their technologica l capabilities facilitates knowledge sharing between consultants, as they are able to connect and share ideas among one another which in turn creates a platform for knowledge creation McKinsey, 2011). As McKinsey pride themselves on their knowledge creation and tacit knowledge, they have adapted the new videoconferencing system using Collaboration 2.0, as it allows their consultants to transfer knowledge through virtual face- to-face interactions which aids in knowledge sharing and knowledge creation in a timely, efficient and effective manner.

5. RECOMMENDATION AND CONCLUSION To continue to improve the companies knowledge management practise and further motivate employees to share their knowledge among themselves. This report recommends that McKinsey should implement something similar to Deloitte University. At this campus employees from around the global can come and interact with one another. At the facility, social events, as well as training programs take place. McKinsey consultants will be able to network, strengthen friendships and build trust and relationships. This enables them to further implement the one firm strategy and help employees more strongly identify with the company culture. Nonetheless, to sum up, McKinsey have a strong knowledge management strategy and system. They have notably been adapting and improving their systems to enhance and increase productivity and efficiency. This has particularly been identified in the creation of their KRD and their PDNet knowledge management systems which have been a thriving success since their launch, with the KRD being regarded as the ‘Yellow Pages’ of knowledge within the organisation. ***

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6. BIBLIOGRAPHY

Argote, L., McEvily, B. & Reagans, R. (2003). “Managing knowledge in organizations: An integrative framework and review of emerging themes”, Management Science, 49(4): p571-582.

Bryan, L. (2004). Making a market in knowledge. McKinsey Quarterly. 1 (1), 1-10. Chui, M et al,. . (2009). Six ways to make Web 2.0 work. McKinsey Quarterly. 1 (1), 110.

Davenport, T. (2011). Rethinking

knowledge work: A strategic approach. McKinsey

Quarterly. 1 (1), 1-10.

Hawryszkiewycz, I. (2009). Knowledge Management: Organizing Knowledge Based Enterprises. Palgrave Macmillan.

HBR (1998). Harvard business review on knowledge management. Harvard Business Press. Hansen, T et al,. . (1999). What's your strategy for managing knowledge?. Available: http://consulting-ideas.com/wp-content/uploads/Whats-your- strat-art.pdf. Last accessed 20th June 2014.

Holsapple, C. W. (2004). Handbook on knowledge management: Knowledge matters.1, SpringerVerlag New York Inc.

Nonaka, I. (1994). A Dynamic Theory of Organizational Knowledge Creatio n. Organization Science . 5 (1), p14-37.

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Nonaka, I. and Takeuchi, H.(1995). The knowledge-creating company: How Japanese companies create the dynamics of innovation. Oxford University Press, USA.

Nonaka, I,. Takeuchi, H. (1995). The Knowledge-creating Company. Oxford: Oxford University Press. 54- 162.

Nonaka, I. (1991). The Knowledge-Creating Company. MANAGING FOR THE LONG TERM HBR. 69 (.), p96-104.

Nonaka, I. (1994). A Dynamic Theory of Organizational Knowledge Creation. Organization Science . 5 (1), p14-37.

Nonaka, I. and Takeuchi, H.(1995). The knowledge-creating company: How Japanese companies create the dynamics of innovation. Oxford University Press, USA.

Polanyi, M (2009). The Tacit Dimension. Chicago: University of Chicago Press. 64-89.

Smith, A. (2001). The role of tacit and explicit knowledge in the workplace. Journal of Knowledge Management. 5 (4), p311- 321.

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