How do you build a great organization? It's the squishiest, most difficult question in business. There is no accounting system for culture, no P&L to prove leadership effectiveness, little in the way of hard data on hiring or retention or team performance. Yet the best companies, the businesses that last, understand the importance of getting the organization right.
Upstairs at 381 Park Avenue South in New York, above the nail salon and the deli, there's a quiet experiment unfolding in the realm of organization building. A bunch of smart consultants have established a new practice that operates at the intersection of strategy and organizational issues. They're also — and this is the intriguing part — creating their own organization, one that reflects everything they know about the field and provides a lab for untested ideas.
They are attempting from square one to construct an institution — "a cathedral," as one of them is fond of putting it — that will rival the enduring service firms of our era. And so, they are considering their organization, its structures, processes, and systems, less for how it works today than what it will look like and how it will perform a generation from now.
This experiment is worth paying attention to for two reasons. First, this six-year-old firm is doing exceedingly well, growing at 36% a year with a pipeline full of engagements with clients such as Aetna and Pfizer. It's getting hundreds of resumes a year from top colleges and B-schools.
And second — well, we mentioned the smart consultants. They are, in fact, very, very smart. Katzenbach Partners LLC is the creation of Niko Canner, Marc A. Feigen, and Jon R. Katzenbach. The three met at McKinsey & Co., where Feigen and Canner helped start the McKinsey Change Center. Katzenbach was a sort of legend, a McKinsey director for decades who had come in second in a 1988 election for the firm's managing director and who had enough clout to stay on six years past the mandatory retirement age of 60.
The new firm was Feigen's idea. He saw, as he says, that "there's a messy interrelationship between strategic capability and people" in any organization. In other words, it's one thing to know what a business has to do and another to understand how to make that happen. Your company's need to get out of one market and into another, for example, may be clear-cut — but that shift probably implies huge, difficult changes in whom you hire, how your employees work with one another, and what motivates them to succeed.
KPL has addressed that dilemma at Aetna, for example, which hired the firm to help devise a restructuring strategy that ultimately included spinning off its property and casualty operation — and then to help restore confidence and rebuild values on the insurer's front lines. At BMC Software, KPL consultants worked on a plan to spark sales growth, then put together a training program to improve the performance of the company's first-line sales managers.
That idea of a consulting practice that joins strategy with organization isn't unique by any measure, at McKinsey or other top consultancies: "We all do that," sniffs Barry Jaruzelski, a lead partner at Booz Allen Hamilton. But it may be that no other firm has been constructed so explicitly to serve the nexus. Certainly, no other firm promotes the niche so fervently. And no other firm has Katz.
Jon Katzenbach doesn't run KPL alone; he shares that responsibility with Feigen, Canner, and three other partners. But the firm bears his name for a reason: He has been spinning out ideas on the theory and practice of organizations for years, in a string of books such as the classic The Wisdom of Teams (1993), Real Change Leaders (1995), and Peak Performance (2000). He says he's currently working on four or five new books to be coauthored with various KPL consultants. And he's still seeing clients full-time.
Katzenbach is the firm's big-name draw, the guy who, in spite of his gentle, avuncular bearing, has star power that attracts clients. The challenge: How to turn the phenomenon of Katz into a firm — a lasting institution? The answers come in large part from the ideas in all those books, and from hundreds of engagements spent plumbing other organizations.
The Strategy-Talent Loop
A typical KPL client team might place one senior consultant with two associates, one a recent MBA hire and the second a college grad. Relative to most big consulting firms, which assign a director to a team part-time in addition to a full-time-engagement manager, KPL's model is both less costly and, on the face, better for the client, promising more senior-level attention.
But the streamlined team is also a talent engine, a vehicle for training and retaining good people. Junior staffers work directly with partners and principals on their client work, getting exposure to the top people in the firm. That, KPL hopes, gets people up to speed faster on how the firm operates and how the work is done. It also gets them jazzed.
"The inclusion of really junior people in high-level thinking — that was a blast of wind in my face," says Jenny Machida, who arrived at KPL last year after getting her MBA. "I was brought in by Niko and Nat Mass [an innovation specialist and part-time KPL 'fellow'] on an engagement to help a consumer-goods company enter a new market. They said, 'Put together an idea.' I was freaking out: How am I going to do this? There was no template. But Niko and Nat made themselves available."
Business strategy reinforces the talent strategy, and talent drives the business. That's how KPL works — it's a series of "deliberately constructed reinforcing loops," as Canner says. "You can map out, for any high-growth company, at least a couple of things that fit into the reinforcing-loop theory."
Consider the firm's growth rate. It expects to bill $38 million this year, and to reach $75 million in 2008, a heady goal. But "you know why we grow?" Katzenbach asks. "It has nothing to do with money. We grow because you can't otherwise provide an opportunity for talent. You have to provide that, or else change your view of who your talent should be."
Of course, a bigger firm does stand to make more money. But his point is that KPL hires a certain sort of person — talented, entrepreneurial, ambitious. In consulting, only two models can accommodate such employees. A static organization with a fixed number of partners encourages junior people to move up or, more often, out. A growing firm keeps people by providing increasing challenge and responsibility.
The upper bound on this model, as far as KPL can tell, is the firm's current growth rate of 36%. Any faster, and it couldn't train senior consultants quickly enough to lead client teams with expertise. It would have to hire more senior people from outside, which would weaken the culture, or bring on more younger hires, which would distort the senior-junior ratio on client teams.
As it is, KPL has developed a remarkably effective mechanism for feeding growth with new talent. This year, 16% of Harvard's senior class applied to work at the firm. KPL got resumes from 11% of Yale's senior class, 9% of Penn's, and 8% at Brown and Princeton. That's a stunning number for any employer, much less a 109-person company that made 34 offers and expects to hire a total of just 20 from undergraduate and MBA campuses.
Why the frenzy? Part of the answer is, who knows? It's hard to account for whim and fashion among 21-year-olds, after all. But it also says something about KPL's savvy approach to hiring.
KPL enjoys a simultaneous advantage and disadvantage in recruiting. Compared with McKinsey, Bain & Co., and the Boston Consulting Group, it has little history and can't promise ambitious applicants a well-traveled career path. On the other hand, the nature of its client work both allows and requires it to be more creative in the sorts of people it brings on. It needs some traditional MBAs to tackle the hard-core analytics of strategy, but the organizational consulting is better staffed by flexible thinkers from a diversity of backgrounds.
Sure enough, KPL has 30 MBAs among its ranks. It has a lot of former McKinsey-ites too — all six partners and about half of the principals. But it also has consultant Lisa Danzig, a former community organizer for political campaigns and project manager for nonprofit groups. Claire Hunsaker was a literary agent and book publisher.
KPL focuses on six college campuses where it has built a presence over the years; with just 40 employees available for the recruiting effort, it can't afford to spread its efforts thin. It makes calculated decisions about whom to send on such trips — not just whoever is available, but the brightest, most affable of its young consultants. And it dedicates much attention to finding the right summer interns, aiming for opinion-leader students who will market the firm to peers.
The idea is to create outsized buzz by looking and feeling different — by presenting KPL as a human place. Look at the firm's Web site, www.katzenbach.com: Every employee has a bio and photo, with an "insight" into the people behind the consultants. ("Bill is also ridiculously tall.") A recruiting brochure is colorful and energetic; at career fairs, says recruiting director Kristen Clemmer, "we're not all in black suits."
As a Harvard senior last year, Harold Birnbaum interviewed with the usual consulting and banking suspects. "But at the Katzenbach information session," he says, "I could tell there was something different about this firm. Everyone seemed to love what they were doing. And they said, 'We're not just MBAs. Tell your friends who are poets.' "
Building the Cathedral
Around KPL, the Lucent telephone system has a place somewhere between metaphor and sacred relic. The story of the phones is part of the firm's lore — how Canner spent $60,000 on a full-featured, built-to-last telecom setup when KPL was just six months old. "You're either crazy to do that," Feigen says, "or you're banking on your vision." (Another relic: the pearl that Feigen fished from his oyster at the lunch when he and Canner first discussed their partnership.)
The tale has become part of the sense of manifest destiny that guides the way people think about their roles and relationships within KPL. Nearly everyone, for example, wears two hats. They are consultants, or designers, or IT professionals — the jobs that generate client revenue. And they have internal roles in running the firm's operations. At the top, Katzenbach has been charged with leading a review of the firm's values. Canner supervises most administrative functions. Lower down, consulting principal Traci Entel coordinates the performance reviews for new associates, and consultant Shanti Nayak leads graduate-school recruiting.
The object is twofold. The first is to prevent the ghettoization of any one function. At a small, growing firm, no department is trivial. Assigning top consultants to human resources and accounting — and assessing their performance as a criterion for promotion — signals how important those roles are to the future of the organization.
Second, it invests staffers in the idea that KPL is theirs to build. "We're at an interesting moment in the firm's life, in its adolescence, so there's the opportunity to help build something," says Alex Goldsmith, a consultant who joined recently. "It's not just that you'll be staffed on internal projects but that you'll be expected to make this firm better, a more interesting place."
Pretty much everyone at KPL talks this way. They have embraced the vision of their firm as a cathedral, of creating a company that will add lasting value to clients, provide a great place to work, and, not incidentally, as its values statement avers, "change how people think about management and how organizations work."
The big question, of course, is how one gets to cathedral from village chapel. KPL has, as Canner puts its, "overinvested in how the firm is managed relative to the short-term economics," laying the groundwork for the institution he imagines. But he and his partners still must figure out how to map their firm's distinctive culture onto an organization that quickly will become much bigger than today's.
KPL has created an emerging practice around informal social networks in organizations, assessing the way information flows and relationships really work. Two consultants, Zia Khan and H.K. Dunston, designed a survey to track and diagram employee interrelationships, and a few months back, they beta-tested it on KPL.
The results — introduced at a standing-room-only session in the firm's kitchen — weren't surprising: There were lines everywhere, indicating dense networks of informal relationships across the firm. The map reflected an organization with few distinctions between junior and senior people, and where, as Dunston observes, "it's not okay not to know someone."
Over the next year, KPL's people know, that map will start to change. It won't be possible to know everyone else, and clusters may start to emerge around geography, client, and specialty. How will that happen, exactly? The firm just named two new partners to its base of four; how will that, and future partner rounds, affect the way KPL is governed? "Can we grow at the rate we're growing," Katzenbach muses, and "keep this a special place for special people?"
Katzenbach himself is 71 now. He thinks about returning to the Bighorn Mountains in Wyoming, where he ranched on his family's property as a kid. He has a novel waiting to be written, he says. But not anytime soon. He has clients to tend to, books to write, and a firm to build. "Something is coming together here," he says. "It's pretty unique." nFC
Keith H. Hammonds is Fast Company's deputy editor.
A version of this article appeared in the April 2005 issue of Fast Company magazine.