It has been my great privilege to be involved in building the McKinsey Knowledge Centre in India. Popularly known as McKC, it is a shining example of the depth and breadth of research and analytics capabilities that can be delivered from India and how such a centre can become a force for innovation and transforming a large, global organization. In this note, I have tried to distill the key lessons I learnt in helping build McKC over 8 truly wonderful years.
1. Need different approach from typical IT/BPO processes
Knowledge Centre is a different beast from a typical IT/BPO Centre. There are at least 3 unique characteristics of a Knowledge Centre that need to be considered: capabilities don’t have clear boundaries, they are often core to a company, and the talent required is hi-skill.
Research, Analytics and other knowledge-oriented capabilities that are part of a Knowledge Centre are not precise products or processes. They are capabilities where the deliverables can vary widely on the data to insights continuum. Moreover, quality and productivity is difficult to define and measure. Therefore, the approach needed to transition and build these capabilities is different from scale BPO processes that tend to have well defined deliverables and processes.
Research and Analytics are often part of the core IP, the “secret sauce” of an organization. Therefore, there is often high level of concern on changing the operating model for such capabilities. The risk of quality dilution is often seen as far higher than any benefits from Offshoring.
Finally, you typically require hi-quality talent often with specialized and/or pedigreed education backgrounds. This talent profile has high aspirations and are very conscious of opportunities in front of them. In addition, they are sensitive about the positioning of working in a “back office” and are often keen to move to the “front office”. These factors make retention an additional challenge.
Given the three unique characteristics that I have described above, it is clear that the approach to building a knowledge centre needs to be different from the more typical IT/BPO processes. This becomes even more critical when the knowledge centre is part of a larger in-house centre. In such cases, the management will likely be more focused on the IT/BPO processes that are much larger in scale. They thus need to make a special effort to calibrate their usual approach and provide enough attention to building the knowledge centre.
2. Go Slow to Go Fast
There are tremendous opportunities for a Knowledge Centre to add value and potentially be a source of competitive advantage for an organization. However, it is perhaps necessary to start small and slow to prove the concept and get the initial buy-in. As mentioned, research & analytics capabilities are not well defined and are difficult to transition. Moreover, it is easy for skeptics to brand the offshore capabilities as poor quality and not adding value given lack of well-defined measures of quality. Any initial miss-steps can make it very difficult to progress the knowledge centre. It is therefore important to take time upfront to establish a very clear and strong value proposition with the primary users. Proposition need not be fancy. Focus should be on solving some real pain points for the key users. For McKC, the initial value proposition was overnight delivery of analysis for consulting teams based in the US. This helped improve the lifestyle and productivity of consulting teams. This simple but clear proposition helped McKC establish strong support amongst consultants within McKinsey and was the foundation for its subsequent meteoric rise.
To take the analogy of the Hare and Tortoise story, in building a knowledge centre the Tortoise probably wins over the Hare!!
3. Ensure ownership from the parent organization
Knowledge and expertise are the foundation of hi-quality research and analytics capabilities. However, these are most often not well codified and lie within the laptops and minds of people. Having a close working relationship with these experts is necessary to build expertise within the offshore knowledge centre. Knowledge is transferred not through a transition process but through osmosis as onshore experts and offshore analysts in the knowledge centre work closely together. To ensure the above is happening, it is important to have an organization construct where the onshore organization feels a high level of ownership of the offshore centre. They should see the offshore centre as contributing to their success and not as competition.
At McKC, we had to make conscious efforts to get our onshore colleagues (“Practices”) to take higher ownership. We had started McKC by building a research “shared service” that served all offices and practices. Over a period of time, we developed industry and functional knowledge specialized teams. However, we felt that we were not able to develop the teams beyond a level without direct ownership by the Practices. At that stage, we decided to transfer the ownership of those specialized teams (including the P&L contribution) directly to the Practices. It was a difficult for us in the local management to let go of teams and capabilities that we had invested so much effort in building. However, this one step was key to launching the next stage of development of McKC. Direct ownership by the Practices helped our people develop as deep subject matter experts and this contributed to both their professional growth and next stage of expansion of the knowledge centre.
4. Become a source of change for the global research organization
Research set-ups in most organizations are traditional, more art than science. The lack of legacy, offshore model and scale of a Knowledge Centre provides a good opportunity to build new processes and systems and then export them back to the organization. At McKC we saw this happen in multiple ways. The most significant was in the profile of talent. Research network within McKinsey was historically a support organization. However, when we set up McKC in 1998 we started by hiring top quality MBAs. This was a significant departure from the type of talent that was hired traditionally in the research network. This raised awareness of the impact that higher quality talent can have on research quality and such profiles have now become the norm for large parts of McKinsey’s global research network. Development of McKC also necessitated the development of formal “order taking” and workflow management systems and also processes for measuring customer satisfaction. All of these systems subsequently got exported back to the global network and have increasingly become the norm for how other research units in McKinsey work.
Perhaps the most significant contribution of McKC to McKinsey’s global research network is that it changed the entire architecture of research within McKinsey. Traditionally research professional were placed in each McKinsey office. The success of McKC was not just a success of offshore delivery but also proved that consolidation of research in a knowledge centre and creating a well identified home for knowledge professionals was the right configuration for building research capabilities. Subsequently, knowledge centers were set up near Brussels and Boston, later on in Shanghai, and more recently in Poland and Costa Rica.
5. Innovate and push the boundaries on new services
In one of the earlier points I had mentioned that it is important to go slow in building a knowledge centre to ensure that you are establishing a clear and unshakable foundation. Equally and more, once you have reached maturity on the core capabilities it is important to push on innovation and explore how you can create new services for the organization. Innovation is a great opportunity but also an imperative to ensure sustainability for knowledge centers. Given the nature of capabilities, they can play a material role in advancing the core proposition and potentially the top line of organizations. Equally, developing new generation of capabilities can provide professional growth opportunities for the hi-quality talent. In the absence of such growth, either you will see attrition or cost creep.
The true success of McKC was it developing as a hub of innovation for McKinsey. We were very successfully able to develop services beyond the initial remit of being a “research back office”, which are now transforming how McKinsey serves clients. Well over 50% of the 600 knowledge professionals at McKC work on new services as opposed to roles that have been transitioned from other offices. There were essentially three principles that underlay most of the innovation we drove: 1) combination of low cost + hi-quality talent making it possible to invest in capabilities that will otherwise not be viable, 2) consolidating the expertise to create new knowledge products and IP, and 3) leveraging the co-location of multiple industry, functional and regional capabilities.
Good examples of the first principle were the creation of Analytics Services and Centers of Competence. McKinsey historically never had a specialized Analytics capability at scale. McKC was a good opportunity to invest in building such a specialized capability that might not have been feasible to build otherwise. Centers of Competence (CoCs) is about standardizing select modules in client engagements and leveraging hi-quality experts based at McKC to deliver those. It is helping McKinsey become more competitive and expand its services to clients leading to significant top line contributions. This is another great example of leveraging the opportunity to get specialized talent at low price points to drive significant innovation. On the second principle, we made many pushes to convert the retained expertise into new knowledge products that could also be taken to clients. McKC is playing an important role in development of the Proprietary Knowledge service line in McKinsey that is attempting to monetize the investments made in internal knowledge development as client offerings. A powerful example of this is extending industry databases into benchmarking services making it possible to serve clients in new, useful ways. Finally, leveraging co-location of capabilities is a massive opportunity that is perhaps still not fully utilized. We saw some examples where regional practices were able to consolidate and develop a global practice utility because of the existing co-location of those capabilities at McKC. Even in developing many CoCs and Proprietary Knowledge services, co-location of different research and analytics capabilities was critical. However, I still see leveraging co-location benefits to be an under-explored opportunity. To capture this opportunity fully, you need mechanisms to go beyond the existing governance silos. It needs senior management awareness and strong will to make that happen.
6. Strong local capabilities necessary to drive innovation
While the strong ownership by the Practices was necessary to build the expertise, the push for growth of McKC as an innovation hub came from local initiatives. Having a local owned shared services capacity and strong leadership were critical in driving innovation. At McKC, in addition to the practice owned research capabilities we had a research shared service called Knowledge-on-Call (KoC). While KoC’s objective was to support all offices and practices on basic research requests, it surprisingly was also the nursery for many cutting edge and specialized capabilities. Even a technically specialized capability such as Analytics emerged from the KoC. The vertically owned Practice Research teams construct was conducive for building subject matter expertise but they also worked with a well-defined and often limiting remit. KoC construct meant lower expertise but more entrepreneurial freedom and ability to invest. The combination of the latter two factors along with strong local management was absolutely critical in driving McKC’s outstanding innovation journey.
7. Get leadership with experience of the core business
The core success variable for a knowledge centre is not operations efficiency but the ability to integrate with the parent organization and eventually become a source of innovation. Therefore, it is necessary to get leaders who have deep experience and credibility within the core business. In the initial phases, the business experience is helpful in shaping the value proposition for the knowledge centre and then integrating with the parent organization. In the later stages, to realize the innovation opportunity it is necessary to have the full view of the core business including client’s needs. Innovation cannot happen in abstraction. For it to be meaningful, innovation has to link two different aspects – gaps in the eventual client service proposition and unique advantages that a knowledge centre might have. It can be a difficult bridge to make. Leaders who have the business experience and entrepreneurial ability to make the connection between the two can lead a knowledge centre to great success for the organization.
8. Think through career paths for your talent
While IP is important, the core asset for a knowledge centre is talent. As mentioned in an earlier point, given this talent has hi-aspirations it is imperative to think through sustainable career paths for them. Money or job security alone is unlikely to retain this talent for long. Moreover, most of this talent aspires to grow as experts and not managers (the career path that is easier to provide in an offshore set-up). Therefore, developing and communicating career paths has to be a proactive and not a passive process. I believe there are three key aspects in developing compelling career paths for knowledge centre professionals:
- Continuous push to develop more value-added capabilities that allow the professionals to challenge themselves and progress. At McKC, development of Analytics and CoCs provided opportunities for professionals to progress beyond service lines they had joined the knowledge centre in. This was critical in retaining the talent within the organization for a long time
- Opportunities to transfer to “front office” roles. While it might not be possible to create this as a defined career path, even having a few examples of transferring from the offshore set up to a client serving office can act as a great motivation
- Continuously experiment with people profiles to find those whose skills and aspirations will be more aligned for a given service line. At McKC, while we continuously grew new service lines, in sync with that we also continuously expanded our people profiles. We initially used to get MBAs for KoC our core research service line. We then moved to hiring Chartered Accountants and Commerce Graduates. We eventually moved to hiring non-finance background Graduates. Increasing standardization and process maturity facilitated this change, and we were able to make the transition without any drop in quality (in fact client satisfaction metrics improved!!). In parallel, we were able to move the higher pedigree profiles to the newer, value-added service lines that we were creating. This process of experimenting with new profiles and mapping to service lines was critical for creating a stable talent model at McKC.
9. Yes, it is about value add but don’t lose sight of cost control
Given the expectations from a knowledge centre it is easy to lose sight of cost control. Hiring and retaining hi-quality talent and ensuring high integration with the parent organization can drive high costs. If not managed well, you can go into a cost spiral that can soon erode the cost advantage of an offshore knowledge centre. It need not be so. If you are practical about talent management and administration of the center, you can deliver hi-quality capabilities without cost creep. The key lies in the combination of continuous push on value added capabilities and experimenting with newer talent profiles that I have mentioned in earlier points. This allows you to get in lower cost resources at the base of the pyramid while utilizing the higher cost resources for more value added services. This combination of service line growth and talent model experimentation is critical. Standing still on them can lead to significant cost creep.
The other important aspect in cost control is the level of integration with the parent organization. There is a cost of integration in terms of facility standards, benefits, amount of travel etc. Many of these aspects (especially travel) might be necessary to build a hi-quality knowledge centre. However, it is important to have a reality check and question the value of different expenses. With a practical 80/20 approach, you can manage costs while not compromising on quality.
A final point on costs – Cost measurement and control is often ignored and not seen as critical. This is a big mistake. The reduction on cost to serve in itself might not be a big opportunity for organizations. However, costs are a critical factor in the innovation opportunity. The biggest facilitator of innovation from a knowledge centre is the low cost structure that lowers the hurdle rate on investments. Thus, additional investments becomes viable that might otherwise not be so. If offshore knowledge centers are not careful about costs they might end up sabotaging a big driver of their innovation engine.
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A Knowledge Centre is a significant opportunity to create outstanding business value for an organization. McKC is a wonderful example of not only the breadth and depth of research and analytics capabilities that can be delivered from an offshore centre, but also how a knowledge centre can become a source of innovation transforming the core client service model for large, global firm like McKinsey. I hope this story becomes an inspiration for many to launch even more exciting and value creating journeys.
