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Lessons from McKinsey

By Clayton Brown
Wednesday, November 16, 2005
last updated November 16, 2005 1:41 AM

Ian Davis, the global head of McKinsey & Company, fresh from taking the pulse of Fortune 500 CEOs, recently told GSBers that “people” is a key business theme of tomorrow. When he spoke at the business school two weeks ago, Davis demonstrated an intimate understanding of everything from history to economy to technology and how they define the concerns of the modern day corporation. His aim was to distill his conversations with global business leaders into several key themes. Included among these were information technology, Asia, strategy and the relationship between growth and risk. However, what he stressed more was the importance of people: “If the 1980’s were about strategy, and the 1990’s were about information technology, then the next decade will be about people.” The question is, what exactly did Davis mean by a term as broad as “people?”

After my brief stint at Lehman Brothers, I’ve often thought that the key lesson of my experience was that business is people. It’s not so much the bricks, mortar, trucks or processes we immediately associate with a functioning business — these tools are ultimately the creations of the people of an organization. The real question is: how do you organize and motivate your people? How do they think and work? When are they irrational versus rational? What makes them tick? In other words: Congrats to the Psych and SymSys majors, there is life after graduation; Davis’s talk suggested that psychology and cognitive science will have an increasingly prominent role in defining global organizations.

The leadership of a company, and culture they set, can make all the difference. For example, some argue that the extraordinarily competitive atmosphere at Enron contributed to its downfall. A “rank-and-yank” system engendered fear in employees and created a culture in which authority and loyalty were favored over dissent. The result was an irrational escalation of commitment to ludicrous accounting schemes. The company eventually toppled, and with it, the fortunes of its investors. In a less hierarchical organization where dissent was encouraged, the Enron catastrophe might have been avoided.

Studies also show that organizations that have more “cross-border” interaction tend to be more successful as a result of superior innovation. By “cross-border” I mean that the people in marketing talk to the people in engineering, and the people in management talk to the folks in the call center. People are more effective at generating new ideas if constantly learning from each other; this is why top universities aim to have a diverse intellectual population. Achieving this structure is so valuable to some businesses that they use software to analyze e-mail patterns and map the inter-company network. They use this data to reorganize employees in a way that increases “cross-border” interaction.

Understanding how customers think can lead to more effective marketing campaigns and customer satisfaction. For instance, some businesses use cognitive science and brain scan technology to study consumer response to different brand tactics. Instead of accepting a marketing firm’s subjective recommendation, companies can use brain surveys to find the scientifically most “pleasing” option. And at the point of sale, psychology leads to more effective interpersonal tactics. Best Buy, for example, trains its employees to first categorize customers (like “Buzz,” the early adopter) so they can customize the interaction to achieve the best results.

So how is Davis putting some of these concepts into practice in his organization? He is launching an initiative to transform away from the usual smart, privileged business type at McKinsey. A more diverse personality base, he says, will enable his company to focus on the nebulous puzzles of organizational behavior in addition to process solutions. He intends to attract people with a range of backgrounds from different social clusters. For instance, he recently hired a priest.

Organization is the difference between excellence and anarchy in building something greater than the sum of its parts. In business, the building blocks are human. Milton Friedman once remarked that “the business of business is business.” These days, and in the spirit of Davis’s talk, the adage might be more aptly phrased, “The business of business is people.”

Want to work at McKinsey? Practice your “hiss” and e-mail Clayton at brown_clayton@gsb.stanford.edu for pointers of what evidently not to do in a case interview.

-- Redica 2005-12-29 6:08 pm

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