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Harvard Case - McKinsey and LUNAR: Acquiring a Design Firm

"McKinsey and LUNAR: Acquiring a Design Firm" Harvard business case study is written by Anne-Marie Carrick, Jurgen Mihm, Manuel Sosa. It deals with the challenges in the field of Entrepreneurship. The case study is 25 page(s) long and it was first published on : Oct 29, 2018

At Fern Fort University, we recommend that McKinsey & Company proceed with the acquisition of LUNAR, but with a strategic approach that emphasizes integration, talent retention, and a clear vision for the combined entity?s future. This approach should focus on leveraging LUNAR?s design expertise to enhance McKinsey?s offerings, while simultaneously preserving LUNAR?s unique culture and creative spirit.

2. Background

This case study explores the potential acquisition of LUNAR, a renowned design firm, by McKinsey & Company, a global management consulting firm. The acquisition presents McKinsey with an opportunity to expand its service offerings and enhance its competitive edge in the rapidly evolving landscape of business strategy and innovation.

The main protagonists in this case are:

  • McKinsey & Company: A global management consulting firm seeking to expand its service offerings and enhance its competitive edge.
  • LUNAR: A design firm specializing in user-centered design, product development, and brand strategy.
  • Don Norman: A renowned design expert and founder of LUNAR, who is crucial to the firm?s success.

3. Analysis of the Case Study

This case study can be analyzed through the lens of Mergers and Acquisitions (M&A) strategy, considering factors such as:

  • Strategic Fit: The acquisition of LUNAR aligns with McKinsey?s goal of expanding its service offerings to include design thinking and user-centered innovation. This move allows McKinsey to cater to the growing demand for design-driven solutions in various industries.
  • Financial Analysis: The case study provides information on LUNAR?s financial performance, including revenue growth, profitability, and cash flow. This data can be used to perform a valuation analysis and assess the potential return on investment (ROI) for McKinsey.
  • Cultural Integration: A key challenge in this acquisition is the potential clash between the cultures of McKinsey and LUNAR. McKinsey?s focus on analytical rigor and efficiency may contrast with LUNAR?s creative and collaborative environment.
  • Talent Retention: LUNAR?s success is heavily reliant on its talented designers and creative leaders. McKinsey must prioritize strategies to retain these key personnel and ensure their continued contribution to the combined entity.

4. Recommendations

McKinsey should proceed with the acquisition of LUNAR, but with a strategic approach that prioritizes the following:

  • Integration Strategy: Develop a clear integration plan that defines the roles and responsibilities of both McKinsey and LUNAR employees. This plan should focus on leveraging LUNAR?s design expertise to enhance McKinsey?s offerings while preserving LUNAR?s unique culture and creative spirit.
  • Talent Retention: Implement strategies to retain key personnel from LUNAR, including competitive compensation packages, opportunities for career growth, and a clear understanding of their role within the combined entity.
  • Financial Management: Conduct a thorough financial analysis of LUNAR to assess its financial performance and potential for future growth. This analysis should include a valuation of the firm and a projection of cash flows.
  • Risk Management: Identify and mitigate potential risks associated with the acquisition, such as cultural clashes, talent attrition, and integration challenges.
  • Communication Strategy: Develop a clear communication strategy to inform employees, clients, and stakeholders about the acquisition and its implications. This strategy should emphasize the benefits of the combined entity and the importance of a smooth transition.

5. Basis of Recommendations

These recommendations are based on the following considerations:

  • Core Competencies and Consistency with Mission: The acquisition of LUNAR aligns with McKinsey?s core competencies in strategy, analytics, and problem-solving. It also complements McKinsey?s mission to help clients achieve sustainable and impactful results.
  • External Customers and Internal Clients: The acquisition will provide McKinsey with the ability to offer a more comprehensive range of services to its clients, including design thinking, user experience, and product development. This will enhance McKinsey?s value proposition and attract new clients.
  • Competitors: By acquiring LUNAR, McKinsey gains a competitive advantage in the rapidly evolving field of design-driven innovation. This move positions McKinsey as a leader in this space and allows it to better serve clients who are increasingly seeking design-centric solutions.
  • Attractiveness - Quantitative Measures: The financial analysis of LUNAR suggests that the acquisition has the potential to be financially attractive for McKinsey. The valuation analysis should consider factors such as revenue growth, profitability, and cash flow.

6. Conclusion

The acquisition of LUNAR presents a significant opportunity for McKinsey to expand its service offerings, enhance its competitive edge, and drive innovation. However, the success of this acquisition will depend on McKinsey?s ability to effectively integrate LUNAR?s culture and talent while leveraging its design expertise to enhance its offerings. By implementing a strategic approach that prioritizes integration, talent retention, and a clear vision for the combined entity?s future, McKinsey can maximize the value of this acquisition and unlock new opportunities for growth and innovation.

7. Discussion

Other alternatives not selected include:

  • Partnership: McKinsey could have chosen to partner with LUNAR instead of acquiring it. This option would have allowed McKinsey to access LUNAR?s expertise without the complexities of integration and talent retention. However, it would also have limited McKinsey?s control over LUNAR?s operations and strategy.
  • Internal Development: McKinsey could have chosen to develop its own design capabilities internally. This option would have given McKinsey more control over the development process but would have required significant investment in time, resources, and expertise.

Key Assumptions:

  • The acquisition of LUNAR will be successful in terms of integration, talent retention, and financial performance.
  • The market for design-driven innovation will continue to grow and provide opportunities for the combined entity.
  • McKinsey will be able to effectively leverage LUNAR?s expertise to enhance its offerings and attract new clients.

8. Next Steps

  • Due Diligence: Conduct a thorough due diligence process to assess LUNAR?s financial performance, legal structure, and intellectual property.
  • Integration Planning: Develop a detailed integration plan that outlines the roles and responsibilities of both McKinsey and LUNAR employees.
  • Talent Retention Strategy: Implement strategies to retain key personnel from LUNAR, including competitive compensation packages, opportunities for career growth, and a clear understanding of their role within the combined entity.
  • Communication Strategy: Develop a clear communication strategy to inform employees, clients, and stakeholders about the acquisition and its implications.
  • Financial Modeling: Conduct a financial modeling exercise to assess the potential financial impact of the acquisition on McKinsey.

This timeline should be flexible and adjusted based on the specific circumstances of the acquisition. The key is to ensure that the integration process is well-planned and executed to maximize the value of the acquisition.

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Case Description

The case explores the possible acquisition by McKinsey &Company of design company LUNAR in response to the new directions management consulting is taking. As of 2014, a new internal unit included 'McKinsey implementation' and 'digital labs', which explored new opportunities for the Firm and soon became major growth vectors for the consultancy. Targeting new capabilities and expertise, senior leadership asks the heads of the Product Development Practice (PDP) to "shoot big" if an opportunity arises. Design is one such capability, but how should they bring it on board: A partnership with an existing design company? An outright acquisition? Or by developing organically, hiring designers to work within the company? Ultimately, the acquisition option is chosen as a way to secure proven design talent, a brand, a portfolio, infrastructure and culture. A team within the PDP pitch a proposal to acquire a design company to the McKinsey advisory board, which gives the green light for a pilot test. McKinsey&Company asks LUNAR to host a workshop (for the redesign of a storage cabinet for laptop computers) and is more than impressed with the result. Discussions to acquire the design firm begin, but strategic, organizational and operational issues must be ironed out first. Students are required to assess whether the acquisition option will succeed, whether there is a better route (with respective advantages and disadvantages), and what organizational levers can be used to optimize LUNAR's integration.

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