IB Reading Summary: "Five Steps to Creating a Global Knowledge-Sharing System: Siemens' Share Net"

Introduction:

The cumulative knowledge that a company is able to access from inside and outside the organization is often regarded as a sustainable resource for competitive advantage. One of the success stories is with Siemens' (one of the world's largest organizations) ShareNet, a global knowledge-sharing system. This system passed through 5 major steps to ensure sustainable performance and value added contribution. Although technical aspects (reliability and usability) are a prerequisite for performance, this article focuses on the global character and rollout phase, the cross-cultural implications, with a detailed focus on the experience in China.

Global Knowledge Transfer and Cross-Cultural Challenges:

Conceptually there are 5 elements, pointing at organizational, psychological and technical factors that have to be fulfilled in order to enable the use of transferred knowledge within an organization: 1. perceived value of the source unit's knowledge, 2. willingness to share knowledge, 3. the existence and richness of transmission channels, 4. the willingness to acquire knowledge from the source, and 5. the absorptive capacity of the receiving unit. Apart from just these Knowledge Management Systems (KMS), though, the information must also pass through a knowledge integration phase (internalized by the receiving unit – how 'sticky' is the knowledge for the receiving unit).

Research Approach:

2 phases: 1) 116 interviews concentrated in hi-tech and consulting industries w/iNorth America, looking for good KMS examples. 2) identified Siemens' as a 'best practice' source in KMS, conducted investigation into the implementation process and global establishment of ShareNet, interviewed 35 executives internationally and incorporated hard data to support results (manuals, internal presentations, etc.).

5 Steps to Creating a Global Knowledge-Sharing System:

Based in Munich, Germany, Siemens is giant global electronics firm – involved in info and communication systems, products and services, semiconductors, passive and electromechanical components, transportation, energy, health care, household appliances, lighting and other businesses.

1998: Siemens restructures their corporate groups to better offer total/comprehensive solutions to clients (moving away from 'simple' product seller). Info and Communication Networks (ICN) is the departmental bridge between the carrier and enterprise branches of Siemens Telecom, realizes they have a rich body of experience that needs to be grouped for best use. Joachim Döring, President of Group Strategy at ICN, heads up this initiative.

Step 1: Define the Concept:

Not just a data repository, Döring's idea was to create a system that was able to handle not only explicit knowledge, but also help externalize the individuals' tacit knowledge by 'codifying' it (a technique best suited for organizations that reuse the same knowledge repeatedly, and therefore require a scalable knowledge-sharing approach that enables efficient knowledge transfer). He gathered an early team to map out broad classifications of knowledge and establish an organizational structure for the knowledge. The components would include: knowledge library, forum for urgent requests, platforms to enable 'rich' information transmissions. The library would be composed of knowledge bids, constructed to categorize the experience gained from ongoing and completed projects, and was compiled using an important questionnaire that captured all of the tacit knowledge (not just the hard details). The urgent request forum would be a place for users to post and check for answers to questi
ons like, "how dangerous is it to lay cables in the Amazon rainforest?" A PM in Senegal answered w/I a few hours and his knowledge saved the South American project $1million Euros. It was also decided that the rollout should not be Munich-driven, that it should be tested in satellite environments to gain cross-cultural insights from people removed from HQ.

Step 2: Global Rollout

First version rolled out in 1999, launched in 39 countries with a "GLOCAL" emphasis – creating mutual trust to facilitate cross-cultural knowledge-sharing, to address the bias of both global integration and local responsiveness. The system would be centrally maintained in Munich in English, but local ShareNet managers were selected, trained in 2-3 day workshops and given incentives to promote the initiative and the concept of knowledge-sharing at local level. Consultants were also hired at the local level to provide support, organize and manage conferences and interface with the local ShareNet managers to bid feedback and control input quality. Global editors oversaw the clarity and usefulness of contributions, reviewed ways in which entered solutions could be understood and reused efficiently.
PROS: benefits became almost immediately evident. The urgent requests platform gave even smaller satellites a powerful forum to access other field people struggling with similar problems. This evident usefulness helped overcome language and culture barriers. Chinese (large part of Siemens' corporation structure) especially took to the system because it satisfied the Confucian principle of 'personal steadiness', 'respect for tradition', 'contributing to the long-term harmony' (Chinese averaged 16.7 KM contributions per worker vs. only 3.3 in the US). Moreover, system was offered gratis, which promoted its use - rather than encountering budget constraints that would limit employees' use of the system.
CONS: Small percentage of German workers were resentful of its English-language orientation, but the system's evident usefulness overcame this concern. Some language concessions had to be made for the lower-level Chinese workers, who may have been reluctant to contribute out of wanting to 'save face' due to sub-par English language skills.

Step 3: Bringing momentum into the system:

They encountered a couple of challenges – people that said they didn't have time to spend on it and others that resented sharing knowledge 'for free.' Still others didn't believe that the clarity in issues regarding their own projects would translate well for others. (These challenges were also observed in other companies with KMS.)
So they implemented an incentive system to encourage contributions. Initially these were bonuses, but in China and India to prevent overuse of the bonuses (to where employees would neglect their regular work in favor of earning 'contribution' bonuses), they changed the incentives to accessories and gift items rather than cash.

Step 4: Expanding Group-Wide

By 2001, ShareNet expanded into the R&D sectors, too. The system was adapted to relevant criteria and parameters for R&D knowledge (more specific and complex than in other units, which had heretofore contributed to its problematic transfer ability). But, by 2002 a different context obstacle had been encountered: knowledge protectiveness and 'shielding mechanisms' that hindered knowledge flow b/w different R&D units. To overcome this, Munich R&D HQ had to set the tone for open communication, and train others to view the strong personal benefit of knowledge sharing. (Once they started, however, satellite engineers took to it faster and better than the Munich counterparts.)

Step 5: consolidating and sustaining performance

The economic downturn caused Siemens to have to reorg staff and divisions in all corporate areas and the ShareNet team was transferred over to a newly-established Competence and Knowledge Management department. The reorgs had the following effect on the knowledge contributions: although the urgent request platform remained highly in use, the knowledge libraries saw fewer and fewer contributions. Discussions on the performance and value of ShareNet led them to begin to document the impact that it had had on ICN's businesses since implementation. The final calculation showed that ShareNet had generated 5 million Euros since its inception in 1988, but this is just a rough estimate because the cost side of the equation had to approximately quantify time-spent, opportunity cost of employee-time-spent, opportunity cost of employee time-spent answering urgent requests, etc. The fundamental premise, however, is that a knowledge-sharing system that is actively used by its employees can
improve performance and may produce a long-term sustainable competitive advantage for the organization.

Learning Outcomes and Implications for Global Practice:

The first three steps in implementation focused on the systematic methods of implementing a knowledge-sharing system, but the crucial task for Siemens' has been to manage the employee obstacles and the crisis resulting from the economic downturn. The system has shown that, even with minimum costs, the system is able to create value for the company and gain its users' acceptance. The timing of the rollout was also crucial, too; it seems obvious that he launch of an entirely new project would have been difficult to accomplish during economically bad times such as in 2001/2002. The insight is that profiting from such an enabling context and anchoring the system within the organization are necessary actions to survive when contrary winds are encountered.

Limitations and Future Challenges:

The Siemens case supports the view that just-in-time delivery of context-specific knowledge can significantly improve performance because it reveals that a thoughtful implementation of a knowledge-sharing system enhances the transfer of knowledge within a global organization and can therefore create value. However, there are certain limitations: 1) on the financial side, it will always remain a significant cost since supervision can only be automated to a certain degree (required dedicated personnel resources); 2) sharing tacit knowledge through a virtual medium has communication and context limitations (some situations may require personal interaction for the knowledge receiver to understand the source's context); 3) the current knowledge platform is limited in media richness and can therefore only create 'weak ties' within the organization.

However, Siemens is committed to the advancement of their KMS. The CEO Heinrich von Pierer desires "to truly release this treasure trove of experience…one of our key competitive advantages."

(Recommend readers briefly scan the Table 2 on page 20 of the article to see the bulleted learning outcomes designated by implementation phase.)

Carol Sautter
404-610-6660
cj_sautter@yahoo.com

Chapter 4 Communicating Across Cultures

Summary
This chapter is abou the various ways communicating
affects the sender and receiver in management
situations. When language is a communcation barrier,
there are many other ways to communicate meaning.

I. The Communication Process
• Communication-describes the process of sharing
meaning by transmitting messages through media such as
words, behavior, or material artifacts
• Communication is a complex process of linking up or
sharing perceptual fields of sender and receiver
• The sender builds a bridge to the life space of the
receiver
• Cultural noise: the cultural variables that
undermine the communications of intended meaning
• Attribution-looking for an explanation for another
person's behavior
II. The Culture-Communication Link
• Trust in Communication: create a clear and
calculated basis for mutual benefit, improve
predictability, develop mutual bonding thorough
regular socializing and friendly contact
• Cultural variables: attitudes, social organization,
thought patterns, roles, language, nonverbal
communication-kinesic/proxemics, time-monochronic
cultures (U.S., Switzerland-individualists) and
polychromic cultures (Latin, Arab-collectivists),
context-high context, feelings not explicitly
expressed, low-context, explicit about thoughts or
feelings
III. Information Technology: Going Global and Acting
Local
• Communication channels-information systems-the
systematic flow of information within an
organization-correlates with the context level of the
cultural; Japanese example
IV. Managing Cross-Cultural Communication
• Developing cultural sensitivity, careful encoding,
selective transmission, careful decoding of feedback,
V. Conclusion
• Effective intercultural communication is a vital
skill for international managers and domestic mangers
with international workforces. Cultural variables and
the manner in which culture is communicated underlie
the processes of negotiation and decision making.

My Time or Yours?

My Time or Yours? Managing Time visions in Global Virtual Teams

More global virtual teams (GVT) are forming in business to tackle international business issues. While these teams are coming from different cultures their perception of time is often different. This article is about the different "time visions" affecting business, and advice on how to make increase functionality within a multi-time vision GVT.

Clock/Linearity – US, UK, Germany, Scandinavia

• a linier view of time
• time can be lost, spent, used, saved

Event - Japan

• cyclical, continuous (holistic), and epochal
• unfolding of time, passing from one phase of an activity
• emphasis on the passing from one phase of an activity to another, rather than time involved
• ritual tradition

Timeless – Hindu and Buddhist

• long-term, abstract, recurrent, epochal
• simultaneous destruction and creation
• passage of time is insignificant
• soul searches for timeless state

Harmonic – Buddhism, Confucianism, and Taoism (China)

• long-term, cyclical, continuous, and recurrent
• a dynamic of life
• time is valuable, punctuality important

Ways to improve time value communication

• scheduling time: deadlines
• synchronizing time: team rhythms
• allocating time: performance measures
• Managing time visions
• Creating awareness of the differences
• Facilitating the development of team norms
• Creating an intersubjective time vision
• Avoid language traps
• Apply the appropriate measures of performance

Cross-border transfer of knowledge: Cultural Lessons from Project GLOBE

Summary: Cross-border transfer of knowledge: Cultural Lessons from Project GLOBE

• A huge increase in cross-border knowledge has increased (and will continue to increase) the need for effective cross-border knowledge transfer.

A real-life case: NORDED (a Nordic European business school)

• Wanted to establish a base in South Asia. Signed agreement with TAI BANK to train managers about leadership and management of change. It was the largest investment the bank had ever made in training and development. Goal was to help TAI BANK transition from local bank to major regional player. Cultural differences soured the relationship between the two parties and could’ve been avoided if they had been identified ahead of time. TAI BANK’s senior management had a top-down communication and decision making style that frustrated middle management. TAI BANK made curriculum changes without discussing it with NORDED.
• The cultural differences between NORDED and TAI BANK were substantial (measured by the avg. distance between rankings on all 9 dimensions listed below), especially power distance differences and differences in uncertainty avoidance.
• Strong personal ties were not developed between the 2 organizations, so the continuity of the program was in doubt. Regular high level contact could have reduced obstacles.
• Taking time to articulate common goals and criteria for success would have helped.
• GLOBE = Global Leadership and Organizational Behavior Effectiveness. Studied 62 societies worldwide. Goal of project: to develop empirically based theories to describe, understand and predict the impact of specific cultural variables on leadership effectiveness and organizational cultures in societies.

Nine cultural dimensions:

1. Power Distance
2. In-Group Collectivism
3. Institutional Collectivism
4. Uncertainty Avoidance
5. Future Orientation
6. Gender egalitarianism
7. Assertiveness
8. Humane Orientation
9. Performance Orientation

Effective knowledge transfer is a function of:

1. Value of the source unit’s store of knowledge
2. Motivational disposition of the unit that sources the knowledge – shaped by national culture and motivational disposition
3. Existence and richness of transmission channels – affected by cultural differences
4. Motivational disposition of the unit to which the knowledge is directed
5. Absorptive capacity or assimilation ability of the target unit.

GLOBE Advice on cross-border knowledge transfer:

1. Define common goals in advance of knowledge transfer. First need to agree on the value of the knowledge to be transferred.
2. Map the cultural profiles. Identify cultural differences that can have a negative impact and explore ways to address them.
3. Assign relationship managers in cross-cultural transfers of knowledge. All parties should have cross-culturally aware individuals accountable for the success of the transfer.
4. Learn from knowledge transfer – view it as a learning experience.

Melissa Efferth

Chapter 5

I. Negotiation- process of discussion by which two or more parties aim to reach a mutually acceptable agreement

5 Stages:

1. Preparation:

· negotiators should familiarize themselves with the entire context and background of their counterparts

· must understand own and other parties' negotiation styles

· should know the value system, attitudes, and expected behaviors of the opposing team

· prior to the meeting find out what kinds of demands might be made, what the composition of the opposing team is and the level of authority that their members posses

2. Relationship building:

· Goal is to get to know one's contacts in the host country and to build mutual trust before beginning any business discussion

· Involves nontask sounding (nemawashi)- general, polite conversation, and informal communication before meetings

· Sometimes intermediaries are needed, these are people who already has the trust and respect of the foreign managers and can act as a "relationship bridge"

· Should also practice "posturing" which is the general discussion that sets the tone for the meeting and it should result in a feeling of cooperation

3. Exchanging task-related information:

· Consists of exchanging task-related info

· Each side typically makes a presentation and states its position, then Q&A

· Negotiators should focus both on presenting their own situation and in showing an understanding of their opponents' viewpoint

· Prepare for this stage by practicing role reversal

4. Persuasion

· Hard bargaining-parties try to persuade the other to accept more of their position and to give up some of their own

· Can face difficulties because of differences in the uses and interpretation of verbal and nonverbal behaviors

· Exhibit 5-4 shows list of recognizable bargaining tactics

· "dirty tricks" sometimes used- giving misleading or distorted factual info, using the excuse of ambiguous authority

· "Rough tactics" also used- designed to put opposing negotiators in a stressful situation physically or psychologically so that their giving in is more likely (uncomfortable room temp, too-bright lighting, take-it-or-leave-it attitude, etc.)

5. Concessions and Agreement

· Stage of concessions and agreement

· Decide ahead of time what your concession strategy will be

· Usually better end results are attained by starting with extreme positions

Managing negotiations

· must understand the position of the other parties in regard to their goals

· problem-solving approach is essential to successful cross-cultural negotiation

- requires that a negotiator treat everyone with respect

- avoid making anyone feel uncomfortable

- should not criticized or blame the other parties in a personal way that may make someone feel shame (lose face)

Successful negotiators

· consider a wider range of options

· pay greater attention to areas of common ground

· tend to make twice as many comments regarding long-term issues

· more likely to set upper and lower limits regarding specific points

· make fewer irritating comments ("We are making you a generous offer")

· use counterproposals less frequently

· use fewer reasons to back up arguments

· practice active listening

Using the Internet for Negotiations

· internet-based programs provide support for the negotiating process but can't take the place of face-to-face negotiations

· Negotiating Support Systems (NSS) program that provides support by finding zones of agreement, decreasing direct and indirect costs of negotiations, and maximizing the chances of optimal outcomes

· INSPIRE- web-based program that provides applications for preparing and conducting negotiations

Influence of culture in decision making:

· Culture affects decision making at the broader context of the nation's institutional culture- produces collective patterns of decision making

· Culture also affects decisions through culturally based value systems that affect an individual's perception of a situation

· 5 stages of rational decision-making process

1. Defining the problem

2. Gathering and analyzing relevant data

3. Considering alternatives

4. Deciding on best solution

5. Implementing decision
--
Maggie Mariscal

Chapter 4 summary--International Business

Chapter 4:

Communicating Across Cultures

**The ability of a manager to effectively communicate across cultural boundries will largely determine the success of international business transactions or the output of a culturally diverse workforce**

I The Communication Process

v Communication: the process of sharing meaning by transmitting messages though media such as words, behavior, or material artifacts.

® It is vitally important for a receiver to interpret the meaning of a particular communications in the way the sender intended

II Cultural Noise in the Communication process

v Cultural noise: the cultural variables that undermine the communications of intended meaning—will enable us to take steps to minimize that noise and so to improve communication.

v Attribution: the process in which people look for an explanation of another person's behavior

III The Culture-Communication Link

v KEY=Trust

® The meaning and level of trust for new people varies drastically

® When asked do you believe "Most people can be trusted?"

· Nordic countries and China had the highest levels of trust

· Brazil, Turkey, Romania, Slovenia, and Latvia had the lowest.

v Attitudes underlie the way we behave and communicate

® Ethnocentrism is one of the greatest types of cultural noise

® Another major problem is stereotyping…attributing general principles to individuals

v Other key cultural variables

® Social Organizations

® Thought Patterns

· Have to be open that your culture isn't universal àie double lines in Thailand do not indicate that you cannot pass, they just mean that that is the center of the road.

® Roles

· Vary from culture to culture…power distance…etc..

® Language

· Basic/major translation errors "come alive with pepsi" =Come out of the grave with Pepsi.

· You either need to be fluent or get a good translator for major deals

v Nonverbal Communication

® Kinesic behavior

· Body movements—sticking your tongue out in China is a sign of surprise

· Eye-Contact, not as important in other cultures…

® Proxemics

· Influence of proximity and space on communications

¨ American culture àcorner office, French àCentral office, Asian àintermingled offices

¨ South Americans, Souther and Eastern Europeans à high contact cultures

Ø Less personal space

Ø More touching

® Paralanguage

· How something is said, not what…. Use of silence, Chinese are more comfortable with silence than Americans are

® Object language

· How we communication through material artifacts

v Time

® Monochronic cultures:

· Switzerland, Germany, USA

· Time is linear, used, wasted, stored, made-up

® Polychronic cultures:

· Latin Americans, Arabs

· Many things can occur simultaneously…meetings are less structured…friends/family take priority over work…can mix the two

v Context

® Context in which the communication takes place affects the meaning and interpretation of the interaction

IV Managing Cross-Cultural Communications

v Developing Cultural Sensitivity

® A manager must make it a point to know the receiver and to encode the message in a form that will most likely be understood as intended

v Carefully Encode a message

® Use words, pictures, etc, that the receiver will understand

v Selective Transmission

® The closer the contacts, the better, face to face, web-chats, etc…all help

v Carefully Decode Feedback

Chapter 9 Econ Notes

Oligopoly is a market structure characterized by competition among a small number of large firms that have market power, but that must take their rivals' actions into account when developing their own competitive strategies.

Noncooperative oligopoly models show interdependent behavior that assumes that firms pursue profit-maximizing strategies based on assumptions about rivals' behavior and the impact of this behavior on the given firm's strategies.

Cooperative oligopoly models show interdependent behavior that assumes that firms explicitly or implicitly cooperate with each other to achieve outcomes that benefit all the firms.

Kinked demand curve model. An oligopoly model based on two demand curves that assumes that other firms will not match a firm's price increases, but will match its price decreases.

Game theory. A set of mathematical tools for analyzing situations in which players make various strategic moves and have different outcomes or payoffs associated with those moves.

Dominant strategy results in the best outcome or highest payoff to a given player no matter what action or choice the other player makes.

Nash equilibrium. A set of strategies from which all players are choosing their best strategy, given the actions of the other players.

Strategic entry deterrence. Strategic policies pursued by a firm that prevent other firms from entering the market.

Limit pricing. A policy of charging a price lower than the profit-maximizing price to keep other firms from entering the market.

Predatory pricing is lowering prices below cost to drive firms out of the industry and scare off potential entrants.

Cartel is an organization of firms that agree to coordinate their behavior regarding pricing and output decisions in order to maximize profits for the organization.

Joint profit maximization. A strategy that maximizes profits for a cartel, but that may create incentives for individual members to cheat.

Horizontal summation of marginal cost curves. For every level of marginal cost, add the amount of output produced by each firm to determine the overall level of output produced at each level of marginal cost.

Tacit Collusion. Coordinated behavior among oligopoly firms that is achieved without a formal agreement.

Price Leadership. An oligopoly strategy in which one firm in the industry institutes price increases and waits to see if they are followed by rival firms.

Chapter 8 Econ Notes

Market power is the ability of a firm to influence the prices of its product and develop other competitive strategies that enable it to earn large profits over longer periods of time.

Monopoly is a market structure characterized by a single firm producing a product with no close substitutes.

Price-searcher is a firm in imperfect competition that faces a downward sloping demand curve and must search out the profit-maximizing price to charge for its product.

Barriers to entry are the structural, legal, or regulatory characteristics of a firm and its market that keep other firms from producing the same or similar products at the same cost.

Public goods have a higher cost of exclusion and are nonrival in consumption.

Costs of Exclusion are the costs of using a pricing mechanism to exclude people from consuming a good if they do not or cannot pay the price of the good.

Nonrival consumption. Once a nonrival good is provided, everyone can consume it simultaneously (i.e. – one person's consumption of the good does not affect the consumption of that good by another person). E.g. – information.

Lock-in and switching costs is a form of market power for a firm where consumers become locked into purchasing certain types or brands of products because they would incur substantial costs if they switched to other products.

Network externalities. A barrier to entry that exists because the value of a product to consumers depends on the number of consumers using the product.

Lerner index. A measure of market power that focuses on the difference between a firm's product price and its marginal cost of production.

Concentration ratios are a measure of market power that focuses on the share of the market held by the X largest firms, where X typically equals four, six or eight.

Herfindahl-Hirschman Index (HHI). A measure of market power that is defined as the sum of the squares of the market share of each firm in an industry.

Antitrust laws. Legislation, beginning with the Sherman Act of 1890, that attempts to limit the market power of firms and to regulate how firms use their market power to compete with each other.

Chapter 7 Econ Notes

Perfect competition is a market structure characterized by a large number of firms in the market, an undifferentiated product, ease of entry into the market, and complete information available to all market participants.

Price-taker is a characteristic of a perfectly competitive market in which the firm cannot influence the price of its product, but can sell any amount of its output at the price established by the market.

Profit maximization is the assumed goal of firms, which is to develop strategies to earn the largest amount of profit possible. This can be accomplished by focusing on revenues or costs or both factors.

Profit-maximizing rule is that to maximize profits, a firm should produce the level of output where marginal revenue equals marginal cost.

Marginal revenue for the perfectly competitive firm is a horizontal line on the supply and demand curve because the firm can sell all units of output at the market price, given the assumption of a perfectly elastic demand curve. Price equals marginal revenue for the perfectly competitive firm.

Shutdown point for the perfectly competitive firm. The price, which equals a firm's minimum average variable cost, below which it is more profitable for the perfectly competitive firm to shut down than to continue to produce.

Supply curve for the perfectly competitive firm. The portion of a firm's marginal cost curve that lies above the minimum average variable cost.

Supply curve for the perfectly competitive industry. The curve that shows the output produced by all perfectly competitive firms in the industry at different prices.

Equilibrium point for the perfectly competitive firm is the point where price equals average total cost because the firm earns zero economic profit at this point. Economic profit incorporates all implicit costs of production, including a normal rate of return on the firm's investment.

Economies of Scale achieve lower unit costs of production by adopting a larger scale of production, represented by the downward sloping portion of a long-run average cost curve.

Diseconomies of Scale incur higher unit costs of production by adopting a larger scale of production, represented by the upward sloping portion of a long-run average cost curve.

Industry concentration is a measure of how many firms produce the total output of an industry. The more concentrated the industry the fewer the firms operating in that industry.

Price-cost margin (PCM) is the relationship between price and costs for an industry, calculated by subtracting the total payroll and the cost of materials from the value of shipments and then dividing the results by the value of the shipments. The approach ignores taxes, corporate overhead, advertising and marketing, research, and interest expenses.

SUMMARY: Perfect competition is a form of market structure in which individual firms have no control over product price, which is established by industry or market demand and supply. In the short run, perfectly competitive firms take the market price and produce the amount of outp tht atmaximizes their profits. Profist earned in the short run can be positive, zero, or negative. Perfectly competitive firms are not able to earn positive economic profist in the long run because these profist will be competed away by entry of other firms. Likewise, any losss will be competed away by frims leaving the industry.
To lower their costs, firms also seek to produc at the optimal scale of operation. However, this scale will be adopted by all firms in the long run, and entry will force prices to equal long-run average cost, the zero-profit equilibrium.

The 20 Page History of McKinsey & Company

The Founder
James ‘Mac” McKinsey, University of Chicago - professor
Began 1926, company of Accounting and Engineering Advisors
General Survey approach – “undeviating sequence” of analysis.

Marvin Bower, Lawyer - Harvard MBA
Opened NY Office
1937 Memo – Pattern business after a law firm, “Serve Clients Superbly Well”
1950 – Elected Managing Partner. Company = 10 Partners and 74 Associates
1967 – Stepped down. McKinsey holds highly respected presence in Europe and N. Am.

Decade of Doubt – Continuous Slow Growth
Enter Competitor: Boston Consulting Group (BCG)
April 1971 – Commission on Firm aims and Goals
Determines that McKinsey has been growing too fast. Too many clients and low quality work.
Shift Associate to MGM ratio from 7 to 1 back to 5 or 6 to 1.
Shift away from Gereralist to In-depth industry or functional specialty.

Practice Development Initiative
1976 – Managing Director (MD) Ron Daniel
Appoints 1st ever Full-Time Dir. of Training.
Emphasis on NOT ONLY Serving its clients, but also developing its consultants
Creation of Industry-Based Clientele Sectors.
Creates internal group to re-evaluate Strategy and Organization.

1977 – Fred Gluck, NY Dir. hosts 3-day “Super Group” meeting
Gluck’s background is Bell Labs in 1967
Hire Tom Peters – Ph.D. in Organizational Theory

1982 – Creation of 15 Centers of Competence (e.g. – strategy, organization, marketing, change management, and systems)
1982 Memo from Gluck – Two-Fold role of centers
Develop Consultants and ensure continued renewal of the Firm’s intellectual resources
“Snowball Making” - Practice Development, the internal effort for improving knowledge
“Snowball Throwing” – Client Development, external consulting

Building a Knowledge Infrastructure
Early 1980’s – Publishing of Firm’s findings.
1982 – 2 Major Bestsellers
In Search of Excellence, Peters and Waterman
The Mind of the Strategist, Kenichi Ohmae

1987 – Gluck’s Knowledge Management Project
Created Database of information learned.
From T-shaped to I-shaped Consultants = Transition to deep functional specialists with narrow expertise.

Databases and Electronic Publishing:
FPIS - Firm Practice Information System
PDNet - Practice Development Network
KRD - Knowledge Resource Directory “McKinsey Yellow Pages”
1988 – (MD) Fred Gluck, open offices in Rome, Helsinki, Sao Paulo, and Minneapolis.
Total Offices = 41

Refining Knowledge Management – Ted Hall weed’s Gluck’s “garden of 1,000 flowers”
Integrating groups and knowledge Sectors into 7 Functional Capability Groups.

Client Impact – CPDC Clientele and Professional Development Committee
1991 – Shift from Engagement Team (ET) to the Client Service Team (CST)
Long-Term Client Focus, core of individuals across multiple ETs.

3 Consultant Profiles:
Jeff Peters, Sydney Office – Off. Dir. John Stuckey assembles a 5 member team for a financial industry project in Aust. Group leverages the international knowledge of the Firm to create a great set of recommendations for client.
Warwick Bray, European Telecoms – Inter-cooperation between branch offices.Intranet.
Stephen Dull and the Business Marketing Competence Center
1983 U. of Mich. MBA - Atlanta Office of McKinsey
Developed Business to Business (BtoB) Initiative – new competence center focused on cutting-edge issues in marketing. (e.g. segmentation, multi-buyer decision making, and marketing partnerships).

Future Directions
1994 – Rajat Gupta becomes MD. Expansion of McKinsey Global Institute - firm-sponsored
research center. Annual corporate Practice Olympics to spur new ideas. Also constructed a Change Center and Operations Center.