McKinsey & Company (McKinsey) operates in the management consulting industry, mainly in the Americas, Europe, the Middle East and Asia Pacific; with its headquarters in New York, but has significant presence all over the world. The company is privately held, and its clientele includes corporations and government agencies. (McKinsey & Company, 2010).
The management consulting industry is a very competitive industry. The attractiveness of the industry is determined by the way these forces are operating in that industry (Hoover’s Company Records – In-depth Records, 2007).
The five are:
- How intense the rivalry is among the firms offering the same product;
- How easy it is for new players to enter the industry;
- The availability of products in the industry which can satisfy the same need;
- The ability of suppliers to choose who to sell their products to; and
- The ability of consumers to choose who to buy from, and at what price.
How intense the rivalry is among the firms offering the same product
This refers to how serious the rivalry is among the firms in the same industry, that is, the kind of strategies they can adopt, and how far they can go to beat the competition. In some industries for instance, some players may even offer the products at prices that are lower than the production costs, just to gain customer loyalty. In others, the players don’t worry much about their competitors, they even agree with the competitors on the price to charge and the quality of product to offer. McKinsey & Company operates in highly competitive consultancy business and requires product and solution innovation on a regular basis to create and maintain a competitive edge.
McKinsey & Company faces competition from other large players in the consultancy market such as BCG, Accenture, Deloitte Consulting, Booz Allen, and Ernst & Young International. Besides firms that originated in the strategic consulting environment such as Bain, firms with core competence in IT solutions such as IBM, Capgemini, and Hewlett Packard have entered and extended their presence in the consulting industry, bringing a new breed of innovations and solution design, allowing other smaller IT firms to do the same. This has put pressure on the margins of mainstream consultancy firms such as McKinsey & Company. Intense competition is very good because it keeps McKinsey & Company on its feet making it invest in the knowledge of its employees and also encourage innovation like encouraging the employees to write the books and scholarly articles, the database that they have of the books enables the knowledge to be shared among the employees and therefore the organisation is developed (Berry, J. 1993).
Ease of entry into the industry by new players
In some industries, there are barriers which make it very difficult for a new player to get into the industry. In others, new players are free to enter without any barrier. The consultancy industry is a first growing industry and there are many small consultancy firms that come up every other day but for them to be recognised and accepted into the industry, they have to have the needed expertise and capacity which is not easy to reach therefore entry into the industry is not very easy. Entering into the management consultancy needs one to be recognised for their academic excellence in that area and also a lot of experience in a firm that is known for excellence in that field and therefore it is not easy to enter the industry making it very stable.
Threat of substitutes
This refers to the availability of products in the industry which can satisfy the same need, that is, products that can be used in place of the organisation’s product. In some industries, there is a wide range of competing products that can satisfy the same need, from which consumers can choose while in others, there are very few alternatives if any, to choose from. Presence of substitutes can reduce the profitability of an organisation and even make an organisation fall of business. The management consultancy business is non substitutable this is because it deals with knowledge which is needed by every organisation in order to develop.
Bargaining power of suppliers
This refers to the ability of suppliers to choose who to sell their products to. In some industries, suppliers can decide not to supply some of the players with their products. In others, suppliers are willing to supply anybody who wants the products, so long as they can pay. Suppliers are part of the shareholders of a business and therefore the business is dependant on them. The management consultancy industry has suppliers like those who supply their stationery and equipment. These suppliers are not dominant in the market because they are so many companies that manufacture and supply stationery and technological equipment. This makes the supplies have a lower bargaining power because they do not influence the market but depend on it, making doing business in a consultancy industry profitable.
Bargaining power of customers
This refers to the ability of consumers to choose who to buy from, and at what price. In some industries, the customers have no say, and have to buy what they are offered at the price set by the sellers. In others, the customers dictate the price of the product. The management consultancy has a large pool of customers whose switching costs are high. This is so because any organisation, be it for profit ,non-profit making organisation and even a government institution, All this organisation need to be trained on the best management practices ,advice on how to solve their problems among so many other services provided by a management consultancy. This makes the industry to be very good because of the many number and variety of customers.
From the analysis it is evident that the main threat that McKinsey & Company is the tough rivalry. Its industry has very powerful competitors and therefore it has to identify strategies that will help it to compete favourably with the competitors.Mc Kinsey has to implement strategies that will differentiate its products. Strategy is a perspective out of which the organization interprets what is going on around it and within itself. It is a viewpoint that discloses the direction towards success that the organization is pursuing services.
The economic environment of the industry is continuously improving. There are a lot of emerging markets, the economy is beginning to recover and therefore all businesses are working towards being the best in their industries making the management industry to boom because of the number of consultancies that the businesses will be doing to be on top of their industries. There is a lot of increased spending on information technology, many businesses are working on their innovations and this also makes the industry to have a lot of customers.
Political environment is about the direction and stability of political factors.it defines the legal and regulatory parameters within which firms must operate. Passing of legislation to increase the spending on Improvement of health care is an opportunity to increase its markets and make more profits.
There is a lot of cultural change in the business sector that now believes in the innovation and technological change. There is a lot of organisations culture that is embracing the technological change. This makes Mc knight to be very marketable because there is a lot consultation on technology issues.
Knowledge and learning
The industry is embracing the change through training of their employees so that they have competency in their service and also to give quality service. The organisations are more interested in developing their employees in order to be able to manage the emerging markets that will need a big number of qualified employees.
The organisation is also developing new technologies that are more user friendly to enable them to appeal more to the customers. Changing their technology to be at par with the continuous advances in the technology in the technology used by the customers is also another way. Having employees who are competent in the use of the new technology is also a competitive advantage in the market.
Mc Kinsey invests a lot of time and resources in development of knowledge among their members.This has made them have members with a lot of knowledge. They even have developed a database for all the articles and books written by the members and in this way the knowledge is shared by all the members making them have a strong knowledge base.
Broad portfolio of offerings
The company is considered as one of the providers of a wide spectrum of consulting services. Business technology, operations, strategy, corporate finance, organization, risk, and marketing and sales are some of the areas where the company operates; and the it has several industry practices including automotive and assembly, public sector, media and entertainment, consumer packaged goods, financial services, telecommunications, and travel infrastructure and logistics.
The company’s wide range of offerings allow it derive synergies between different practices as well as makes it a one stop shop for most of the clients’ consulting requirements.
The changing environment requires that Mc Knight increases its knowledge base further in order to give quality and also to differentiate its products in order to have a competitive advantage. Their portfolio also needs to be changed in order to take care also of the new emerging markets. They should also open new branches in order to take advantage of the emerging markets like the developing countries.
Mc Kinsey’s strengths
McKinsey & Company has a brand name that it has built over the years for reputable management consultancy. This makes it have a competitive advantage because it is well known in Europe and North America. UK – based vault.com has been ranking McKinsey & Company as Europe’s leading consulting firm for the last three years, based on a survey conducted among the consultants. For eight consecutive years, McKinsey & Company has been occupying the top position on the list of top 50 consulting firms. The company’s experience on various prestigious projects has also played a major role in building its brand name.
McKinsey has carried out several prestigious contracts such as designing NASA; advising the Vatican on its banking system; and developing the Universal Product Code (UPC). McKinsey & Company was also able to serve more than seventy percent of Fortune magazine’s most admired list of companies, three out of the five largest companies in the world and two-thirds of the Fortune one thousand companies. With its strong brand image, the company is able to build a well spread presence in 94 locations in 52 countries.
The company has competitive advantage to win large projects due to its significant brand, providing continuous business.
Consultant skills and expertise
The organisation is known for developing, capturing of knowledge in their employees and this started way back with Bower who focused on the big picture instead of on specific operating problems, helping boost billings to $2 million by 1950. He hired staff straight out of prestigious business schools, reinforcing the firm’s theoretical bent. Bower implemented a competitive up-or-out policy requiring employees who are not continually promoted to leave the firm. The company continuously promotes learning and knowledge sharing among their employees like using the data base where one can post an idea and the other members build on it. This enables it to have competent staffs who know there areas well, since it is a consultancy firm this promotes quality service. This has been done through providing a competency infrastructure where the employees are in work teams and they undergo training so as to continuously develop their knowledge in the major areas like strategic management. It also developed multiple career paths for its employees this made the employees focus on being the team’s consultant and also client impact.
Large customer base
McKinsey & Company has a very large group of customers, ranging from financial institutions to aerosols.
Competent human resource
Through their training and recruitment, McKinsey & Company have a very competent group of personnel who provide quality service to the employees. This has given the company a competitive advantage.
McKinsey & Company has good technology that enables it to be able to have new innovations that give it an opportunity to explore the markets.
Lack of enough presence in some areas
Compared to its competitors, McKinsey & Company has less presence in some areas of operation such as human resource and technology areas. This gives the competitors business which McKinsey would have competed for in such areas. This therefore reduces McKinsey’s chances of earning revenue.
McKinsey & Company has had its share of issues in the past related to management consulting, such as the problems it had with Enron; and the recommendation to AT&T in 1983 that cellular phones would be a niche market. It has also received negative reaction to its Vision 2020 scheme, which talked about privatisation of some countries funded by US and UK governments, such as India.
Privatizing healthcare and education, scrapping laws to defend small business, and replacing small investors with large corporations, are some of the initiatives included in the scheme. Generation of employment in the countryside, which would dispose 20 million farmers, is also part of the scheme. Most people have had negative comments about the report and said that it will not help but lead to joblessness and mass starvation, with no state benefit. The scheme is said be similar be to General Pinochet’s Neoliberal scheme which led to a lot of debt, malnutrition, lack of homes and joblessness in Chile in the 1980’s. The involvement of one of the company’s in the hedge-fund insider-trading scheme has also subjected the company to a lot of criticism. There were accusations of insider trading and disclosing of its customers’ confidential information to outsiders levelled against Mr. Kumar, a California based director, In October 2009. These affected the customers’ trust and loyalty because they were viewed to be unethical. The company’s reputation is threatened by the negative publicity resulting from the criticism, which makes it difficult for the company to attract and retain corporate clients.
The upcoming markets are expected to grow a lot in coming years due to the global business growing. Although developed countries were hit by recession, the upcoming markets which are found in developing countries were not affected. This means that they continued to grow. These markets are expected to contribute more to the global business and consumption in the coming years. This argument has been derived from statistics on the GDP growth of these markets. For instance, it has been forecast that the emerging economies’ real GDP growth will go up to six percent and six point three percent in twenty ten and twenty eleven respectively, in contrast to a growth of two point one percent in two thousand and nine. The countries believed to drive this growth are china, India and other Asian countries. Looking at this growth, it will provide opportunities for organisations. McKinsey & Company being a consultancy firm, it will gain from the growth opportunities because it will provide its services to companies in these emerging markets.
Growth of end market
Growth is expected in some areas that the organisation provides its services the se are healthcare pharmaceutical markets and oil. Like in the US sector is being improved. From the industry sources, the US health care budget are said to be trillions and are projected by an average annual rate of about seven percent for the next 10 years. In addition, the new government has passed a legislation to spend over a hundred and seventy billion dollars in federal healthcare for children’s health coverage, public insurance programs for the poor, health Information Technology and disease research. The global oil and gas market is also expected to be three point three eight trillion US dollars in twenty thirteen, increasing annually at a rate of about three percent, the US government projects are also showing developing of new energy projects. An example is the legislation emphasizing on energy, the availability of $ 1,200 million in basic research at the Department of Energy’s national laboratories and a proposal of 10 year extension to a tax credit for investments in research and development.
The pharmaceutical industry is also growing very fast in the world. The global pharmaceuticals market grew by three percent in two thousand and nine, to record a value of six hundred and forty four point two billion US dollars. And it is forecast to reach seven hundred and fifty eight point six billion US dollars in twenty fourteen, an increase of seventeen point eight percent since two thousand and nine. McKinsey provides various consulting services for the oil and gas companies, healthcare providers and distributors, and for pharmaceutical companies. Positive growth in such end markets will result in the origin of new projects, there by creating the demand for the company’s consulting services.
Growing worldwide Information Technology spending
More and more people around the world are developing interest in the developing technology and this interest has led to increased spending on technology, not only by individuals but also organisations. According to industry sources, worldwide Information Technology spending would reach three point four trillion US dollars in the year twenty ten, a four point six percent increase from the year two thousand and nine. The worldwide Information Technology service spending is expected to increase from seven hundred and eighty million nine hundred thousand US dollars in the year two thousand and nine to eight hundred and twenty four million two hundred thousand US dollars in the year twenty ten, an increase of five point six percent.
Open more branches
McKinsey & Company should open up more branches in order to capture a broader base of customers. This should be done by having branches in areas that have prospect for markets in order to create a relation with the customers. This will enable them to increase their market share and also they will be able to get new customers for their services.
The organisation should also continue to increase its knowledge base in order to have more competent personnel who can be able to market it well. Increasing their knowledge will also lead to higher quality products that will differentiate their products from others. Having product quality will lead to customer satisfaction and loyalty leading to a big customer base and increased profit margins.
Increasing their technology will also enable it to cope with the increased spending on technology. This will also help them to create more innovations that will attract new segment of customers and hence increase the customer number. Innovation will also help to keep the existing customers by providing them with variety.
It should also increase its number of personnel in order to be able to serve the increasing market opportunities. New markets will need a number of personnel in order to give them the customer satisfaction and create customer loyalty by the quality of service they will give.
There is a lot of competition and that is the major challenge baring this vision from being achieved.
McKinsey & Company consultancy business that has a lot of competitors. To maintain a competitive edge, the company must ensure that they continue with their innovation of new services. McKinsey & Company faces competition from companies like BCG, Deloitte Consulting and Booz Allen. There are also other companies that compete in the strategic consulting environment such as Bain, and in information technology such as IBM, and Hewlett Packard. Having so many competitors’ means that McKinsey & company is at risk of loosing its market share every other time
Product service quality / differentiation
This will be a very easy strategy for McKinsey & Company to achieve due to its knowledge base and competent personnel. The organisation should use their personnel to provide quality services and goods in order to be able to have a competitive advantage over its competitors. This also helps to build customer loyalty with time this enables a firm to charge premier price for its products. The quality also acts as a strategy as the product will be known for its excellence and this will just attract new customers.
McKinsey & Company can also use the price policy in which they analyze the price its competitors are setting for their services and having a lower yet still profitable prize. This will enable it to increase its market share and have a big market share and this is also good as they try to penetrate the emerging markets.
With increased spending on technology it will be an advantage for McKinsey & Company to be a leader in technology this will make it have more customers and increase its market share. Being at the fore front in technology will also enable it to make new innovations that will enable to be able to produce new products for its customers hence increasing the market share and customer base.
Low cost leadership
Low cost leaders depend on some fairly unique capabilities to achieve and sustain their low-cost position. This can be done if an organisation has a dominant market share. They can excel in this by having cost reduction and efficiencies. A low cost leader is able to charge low prices because of the low cost and still enjoy profit margins. Through this it can defend itself through this from all the competition and gain a big market share (Kemba J. 2003).
Berry, J. (1993). You won’t have McKinsey to kick around anymore Journal of Management Consulting. 7 (4), 9.
Hoover’s Company Records – In-depth Records (2007). McKinsey & Company. New York: Hoovers Inc.
Kemba J. (March 2003). McKinsey Taps Low-Key Leader for Tough Times Wall Street Journal. p. B.1
McKinsey & Company (2010). Company website. Web.