Table of Contents

Background. 2
Change Required. 2
Planning and Monitoring the Change. 3
Communicating and Implementing the Change. 5

Background

Founded in 1923, McKinsey and Company herein referred to as McKinsey has grown to become one of the most successful strategic consulting firms. The firm accounted for 84 offices spanning across different countries of the world as at 2001, In that same year, the company had approximately 7000 professional staff from 89 different nationalities. (Rasiel and Friga, 2001). McKinsey serves as a strategic consultant to at least 1000 companies including 100 of the world’s 150 largest companies. it also serves as a consultant to many U.S State and Federal Agencies, as well as foreign governments’ agencies. (Rasiel and Friga, 2001). McKinsey provides services to firms from different industries including: Automotive and High Tech Assembly; Public Sector; Chemicals; Media and Entertainment; Pulp & Paper/Forest Products; Consumer Packaged Goods; Metals & Mining; Retail; Electric Power & Natural Gas; Petroleum; Social Sector; Financial Services; Pharmaceuticals & Medical Products; Telecommunications; Healthcare Payor and Provider; Private Equity; Travel Infrastructure and Logistics. (http://www.mckinsey.com/clientservice/industry.asp).

The firm is committed to high quality service to its clients. It achieves this through its ability to integrate its knowhow in functional areas with its deep industry knowledge on a global scale. (http://www.mckinsey.com/clientservice/). McKinsey is organised into industry and functional practices, which enable it to develop business knowledge and insights that create a critical mass of expertise to provide superior client service. (http://www.mckinsey.com/clientservice/).

2. Change Required.

The change that is required is to implement the Six Sigma. This project is necessary because McKinsey has currently been a subject of criticisms for low quality services to clients. A number of McKinsey clients have filed for bankruptcy in the recent past. McKinsey for example has been accused as being the brain behind the energy giant’s (Enron) into problems. (Business Week, 2002). McKinsey only narrowly escaped because all fingers were pointing to the Auditor of Enron at the time Arthur Anderson. Enron is not the only McKinsey client that has failed in the recent past. Another notable case is Swissair that filed for bankruptcy following consultations with McKinsey. (Byrne, 2002). However, recent findings suggest that the blame for Swissair’s failure may have been attributed wrongly to McKinsey. (Knorr and Andreas, 2003). Other cases include the case of AT&T (Joel, 2008); Overemphasis on shareholder value in the case of British Railways Company – Rail track (Hirst, 2002; Barrie, 2001). Based on the above SWOT analysis, one can observe that McKinsey needs to change certain aspects of its operations. It needs to improve its corporate image by implementing the Six Sigma Methodology. If it does not implement this change, it may loose customers to other consultants. The Six Sigma methodology depends on IT systems to operate. Six sigma refers to a measure of quality that strives for near perfection. (iSix Sigma, 2009). This means that one of the forces for change in the organisation should be Information Technology. It is a disciplined data driven approach and methodology for eliminating defects (driving towards six standard deviations between the mean and the nearest specification limit) in any process from manufacturing, to transactional and from product to service. (iSix Sigma, 2009). Six sigma can also be represented statistically. This so-called statistical representation quantitatively described the performance of a process. Under the statistical representation, the number of defects from every process is limited to 3.4 per million opportunities. (iSix Sigma, 2009). This means that the percentage of default from a process must not exceed 0.00034%. The application of Six Sigma improvement projects enables and organisation to implement a measurement-based strategy that focuses on process improvement and variation reduction. (iSix Sigma, 2009). Process improvement and reduction of variability is a fundamental objective of any organisation. Reduction of variances enables an organisation to develop accurate forecasts regarding demand, sales, costs and profitability. Moreover, process improvement can help an organisation to reduce defects, wastes, downtime, machine breakdown, and bugs in computer systems and etc.

According to Waxer (2009) Six sigma is superior over other quality management systems in that it is linked to business finances. The Six Sigma approach enables the quantification of financial benefits of process improvement projects. This in turn enables the selection and prioritisation of process improvement projects. Six Sigma enables the re-evaluation of financial benefits during the analysis phase to ensure that the cost of improvements suggested will be supported by the benefit of the project.

The rigor associated with linking Six Sigma projects to business financials helps connect everyone within the business — not just the quality department and related personnel. The entire organization, including the CEO, CFO, line managers, employees, and shareholders, looks to Six Sigma to increase cost savings, productivity, and incremental revenue. It also helps differentiate substantial process improvements from insignificant ‘fluff’ projects that have little long-term benefit for the business. (Waxer, 2009).

The main benefits of the project include the following:

-improvement of the quality of service offered by McKinsey;

-Reduction of costs;

-Improvement in processes;

-Improvement in performance management and measurement; and

-Improvement of McKinsey’s Public reputation and Corporate Image.

3. Planning and Monitoring the Change.

The primary objective of the change is to implement the Six Sigma Methodology in McKinsey so as to ensure the provision of high quality services to clients. This objective is expected to be achieved within three months from the initiation of the project. Other objectives include:

Long-term improvement of operational and management efficiency. This is expected to be achieved within two years from project initiation. Targets will be set for measuring performance and evaluations will be made to assess how the firm is performing with respect to targeted performance indicators.
Cost reduction. This is expected to be achieved within one year from the initiation of the project. Targets will also be set for costs and actual costs will be compared to estimated costs to see whether the organisation achieved those targets.

Customer Satisfaction. This is expected to be achieved within one year from implementation of Six Sigma. Customer surveys will be conducted after one year to measure how customers perceive the services offered by McKinsey. Results of the surveys will be compared to targeted levels to see whether the firm outperformed or underperformed with reference to those targets. Comparisons will also be made with respect to the performance of competitors in the industry.

Improvement of the Corporate Image. A specific time limit cannot be stated here but a preliminary period of two years is anticipated. However, it is expected that if customers are satisfied, they will certainly talk good about the company and this will promote its corporate image. Thus within one or two years, the corporate image may improve.

To monitor the achievement of the primary objective, the balanced scorecard shall be used. It is a performance measurement tool that consists of various performance indicators. Targets will be set for each indicator and performance will be measured against those targets as well as against industry benchmarks. The objective is to ensure that the company performs better than other firms in the industry.

In order to properly implement the Six Sigma methodology, a number of guidelines need to be followed. The methodology makes use of facts and figures while at the same time initiating quality improvements in business processes and greatly increases the probability that the implementation of projects will turnout to be a huge success. (eHow, 2009). However, a company may not benefit from Six Sigma if it does not follow the right approach. A company must choose the right project. (eHow, 2009). It is necessary for businesses to take extra precautions when selecting implementation projects especially when the company is implementing the Six Sigma approach for the first time in the organisation. The business has to begin by conducting a risk assessment analysis to enable it identify the right projects. (eHow, 2009). Therefore, we will begin by conducting a risk assessment analysis for McKinsey. The risk assessment will enable us to identify which projects to select. Risk assessment deals with factors such as potential benefits of a given project, its ability to act as a guiding light for future projects, associated costs, its acceptability within the concerning functional department and most importantly, the potential damage that the organisation might have to bear if the project fails to achieve the most basic objectives. (eHow, 2009). For McKinsey, a point merit system will be used to determine the projects that can be undertaken. The point merit system is a system that assigns points to different projects based on the degree of their compatibility with the other factors. Based on the point-based approach, the project with the highest number of points will be selected for final implementation. This is to ensure that only projects with the lowest degree of risk and the highest amount of potential benefits shall be implemented.

Implications of the Change.

The change is expected to have financial consequences on the organisation. These consequences will occur both in the long- and short-run. In the short-run, it is anticipated that the firm will witness an increase in costs. The company may be required to issue debt or more shares to raise external funds if internal funds cannot cover the costs. These funds will be required to buy equipment, pay for installation and train employees on how to use the new technology once it has been put in place. Thus, the company’s financial leverage may increase if debt is issued or earnings per share may decrease if the company issues more share capital. In the long-run, the firm is expected to reap the benefits of implementing Six Sigma. This is expected to be reflected in its profit margin and share price performance. We expect the financial benefits to outweigh the financial constraints.

The change is also going to affect McKinsey employees in that they will be required to go for further training on how to use the Six Sigma approach once it is implemented. Some employees may witness a change in their job descriptions while others may be moved to different departments of the organisation. Employees may witness some benefits if the change is successful. This may be through share appreciation rights or other performance benefits.

As suggested by Lewin in his force field analysis model, the organisational change is characterised by the interaction of driving forces for change and opposing forces against change. (Garside, 1998; Hayes, 2002). These forces ensure that the organisation is in an equilibrium position. (Garside, 1998; Hayes, 2002). Based on the force field analysis, we expect certain opposing forces against the implementation of Six Sigma in McKinsey. Opposing forces may come from top management, Board of Directors, Shareholders, employees, regulatory bodies, and other stakeholders. The Board and Shareholders may be concerned with the costs required and whether the organisation will be able to recover those costs. Employees may be unwilling to unfreeze their current state. They may be unwilling to learn new techniques, etc. Selfish top management executives may be satisfied with the current state of affairs and may not be willing to succumb to change given that such a change may deplete the benefits currently being achieved from the way things currently operating. Some employees may have similar selfish desires. To overcome these opposing forces, top management need to carefully and accurately communicate why the change is needed and how the organisation including all stakeholders are to benefit from the change. Steps have to be taken to ensure that the driving forces outweigh the opposing forces. (Lewin, 1958).

5. Communicating and Implementing the Change.

The change is expected to be communicated to the Board of Directors, Shareholders, employees and clients. The importance of communicating the change to the Board is to enable them deliberate on the change to assess its costs and benefits to the organisation. Shareholders also need to be aware of the change to be able to assess its potential benefits on their share value. Employees need to know about the change because they will be the ultimate actors in implementing the change. To facilitate organisational change or innovation, different departments of the organisation need to work in close collaboration. Communication is critical to this collaboration. The R&D department must communicate with the Marketing Department to ensure that the changes being undertaken are in line with the customer needs. Moreover, there is the need for the statistics department to provide statistical information concerning the prevailing economic environment.

Basically, the steps that will be taken can be summarised as follows (Aveta Solutions, 2009):

We will ensure that the organisation is committed to the project, that top management is in agreement and that financial and managerial resources are available. Policies, guidelines and training programs will be established for employees;
Project scope and goals based on client feedback will be defined; it should be noted that inspiration for Six Sigma projects can be based on surveys, studies or existing projects; goals will be set for the whole organisation or for a specific level of the organisation that needs improvement;
Defects and performance in the current system will be estimated using statistical analysis;
The system will be analysed to identify defects and problems as well as the possible causes of the problems;
The system will be improved by finding ways to do things faster, cheaper or better. Management planning tools shall be employed to put the improvement project into place and the improvement will be tested using statistical data; and
The new process shall be controlled by modifying systems and measuring processes to continue to achieve results; customer feedback and statistical tools shall be employed and performance improvement strategies shall be documented as methods to recognise and solve future problems.

To ensure that the above procedures are conducted properly, management training is required. We assume that the company is employing the Six Sigma Methodology for the first time and as such needs to train and develop its managers to be able to meet the objectives of the project. For every project to be successful, it requires contributions from all levels of management: Top Management; Middle Level management and Operational Management.

Top Managers make strategic goals and these goals needs to be achieved by adopting strategic plans. Strategic plans represent the procedures employed by to management to achieve strategic goals and targets. (Southwestern, 2005). Top management will be provided training on how to set strategic goals and how to design strategic plans to achieve those targets.

Middle level managers will be responsible for setting tactical goals/targets. They need to design tactical plans (procedures designed to meet tactical goals/targets) to achieve this target. Training will also be provided to this level of management on how to go about these goals and plans as far as implementing the Six Sigma approach is concerned.

Finally, operational level managers will need to set operational goals and targets and they will be required to set operational goals/targets and design operational plans to meet these goals. (Southwestern, 2005). It should be noted that unless operational goals are achieved, tactical goals cannot be achieved. Likewise, strategic goals depend on the attainment of tactical goals. (Southwestern, 2005). Basically, everything boils down to operational goals.

This calls for collaboration between the different levels of management. Training will therefore be provided to the three levels of management identified on how to communicate properly with one another. It is important that information flows effectively from top to bottom and from bottom to top. Tactical plans should depend on feedback from operational management and strategic plans should depend on information from middle level management.

References.

Aveta Solutions (2009). Guidelines For Implementing Six Sigma, available online at: http://www.sixsigmaonline.org/articlelive/articles/497/1/Guidelines-For-Implementing-Six-Sigma/Page1.html

Business Week (2002). McKinsey Big Think. Available online at: http://www.businessweek.com/magazine/content/02_27/b3790005.htm

Barrie, Giles, (2001) “The land that timetables forgot,” Property Week, May 25. Available online at: http://www.propertyweek.com/story.asp?storyCode=3007470

Byrne, John A., “Inside McKinsey: Enron isn’t its only client to melt down. Suddenly, times are trying for the world’s most prestigious consultant.” Business Week, July 8, 2002

http://www.businessweek.com/magazine/content/02_27/b3790001.htm

eHow, Inc. (2009). How to Implement Six Sigma. Available online at: http://www.ehow.com/how_2089231_implement-six-sigma.html

http://www.mckinsey.com/clientservice/industry.asp

Joel, G. J. (2008) “Our Cells, Ourselves,” “Washington Post,” 2/24/08. Available online at: http://www.washingtonpost.com/wp-dyn/content/article/2008/02/22/AR2008022202283.html?sid=ST2008022202336

Garside, P. (1998). Organisational context for quality: lessons from the fields of organisational development and change management. Quality in Health Care; vol. 7 (Suppl):S8–S15

Hayes, J. (2002), “The Theory and Practice of Change Management” Palgrave, New York, ISBN 0-333-98796-9

Hirst, C. (2002) “The might of the McKinsey mob,” The Independent, January 20. Available online at: http://www.independent.co.uk/news/business/analysis-and-features/the-might-of-the-mckinsey-mob-664081.html

Knorr, Andreas and Andreas Arndt, (2003) “Swissair’s Collapse – An Economic Analysis,” IWIM – Institute for World Economics and International Management, Universität Bremen, September

Rasiel, E. M., Friga, P. N. (2001). The McKinsey Mind: Understanding and Implementing the Problem-solving Tools and Management Techniques of the World’s Top Strategic Consulting Firm, McGraw-Hill Professional, ISBN 0071374299, 9780071374293

218 pages

Southwestern (2005). Chapter 7 Managerial Planning and Goal Setting; Thomson Learning.

Wexer, C. (2009). Calculating the Cost and Savings of Six Sigma Quality. Available online at: http://www.isixsigma.com/library/content/c010603a.asp

http://www.mckinsey.com/clientservice/