The Disruptors: Innovecs and McKinsey & Company’s Interview with Top-100
Client growth is central to their business models. At McKinsey & Company, this is achieved through strategic management decisions while Innovecs brings it to life through a provision of software development services. Alex Lutskiy, Innovecs’s Co-Founder and CEO, and Georges Massoud, Managing Partner at McKinsey & Company, share their company insights, potential client expectations, risks, and business development viewpoints.
You have been in charge of the companies’ operating in the intellectual property field. Could you describe the current state of your business in today’s Ukraine.
Alex Lutskiy. Commodities trading business prevails in Ukraine. In the IT field, a commodity market share makes up about 80%. The main reason why few Ukrainian companies are involved in professional services provision is because Western clients do not perceive us as proficient value-added service providers. They see us as a source of cheap labor and resources, just as it used to be in China.
However, we’re witnessing a steady shift from commodities trading to professional service business. It is rather complicated and labor-intensive; making changes in the company mission statement is not sufficient.
This transition requires a massive shift that embraces corporate culture, professional management, expertise, and final output. If the transition succeeds, the company reaches a new level with added value, renewed reputation, experience, and branding.
We are well aware of these challenges and choose to work not only with local experts, but we’ve also invited Western managers from trendsetters like Amazon and GSMA to join our team in Ukraine. We are absolutely convinced that the expertise they hold is an invaluable asset that is hard to find here. This knowledge costs a lot more than we pay for it.
At Innovecs, our workload is 60% commodity projects and 40% service-focused business. Within two years, we expect a twofold increase, from a 40%-index up to 80%. Yet, we will continue handling commodity projects since we have gained an extensive experience in this domain.
Georges Massoud. Our company has seen a complete transformation. Clients once came for strategies. Today, we are not limited to giving advice; we are involved into process. We watch change happen in real time along with our clients. The world has been disrupted. Currently, we implement technological solutions in addition to strategy development. More than 2,300 IT experts help tackle client issues, from cybersecurity to mobile marketing.
McKinsey employs about 2,000 data analysis specialists who focus on big data processing. For the last five years, we have developed tens of digital banks from scratch. It takes us two weeks to create MVPs. Efficient user experience is in high demand now—users need intuitive navigation and appealing interface design. This is why we have acquired industrial design companies Lunar and Veryday and built an innovative solution integrating business strategies and design capacities. We are among the top-10 leading industrial design companies recognized worldwide. Our new powerful resources comprise advanced analytics and machine learning enhanced by the recent acquisition of QuantumBlack and our partnership with SparkBeyond.
The services your companies provide are rather costly. How are consulting services valued in our country?
Georges Massoud. 80% of our clients keep coming back for more. One of our clients once said: “We can talk business to you and see the outcomes.” What does that mean?
Before making changes, we take time to assess the output each may give. If there is a minor effect, we review priorities together with clients. Our team is extremely result-oriented and seeks to draw substantial, long-term, and positive transformations. By the way, it is a direct quote taken from the McKinsey mission. If someone says, “We consider it to be the right decision to make,” while our team holds the opposite view, it may take us half a year or so until the CEO changes his opinion, since no positive shift occurs. However, if we happen to be the first to come up with better solutions, that would cover our service cost by 5-10x, and a client’s attitude would be different. It would spur interest in what we can do.
We also specialize in developing custom-built solutions. Our team takes an individual approach to each and every client in order to solve specific business problems. If McKinsey has an expert in Australia or Canada with a proper skillset to tackle an issue, he or she will take the first flight to come to Kyiv and help. The company works as a single unit. The knowledge and capacities we provide to clients, as well as an uncompromising pursuit of optimal decisions we make, match the quality of those offered in America, Germany and Ukraine.
Alex Lutskiy. As for Innovecs’ and Ukrainian IT business as a whole, we tend to work for export. Indeed, the services we provide are not cheap. Still, they remain competitive compared to the services rendered locally.
Services range greatly. The business of trading commodities is what we have learnt to manage at a high level. The world is well aware of this type of business.
Most of the western companies coming to Ukraine know that the software development expertise here is profound, but the price tag is low as compared to Europe and US.
The situation with professional services still needs sorting out. They should be built, developed, and sold to the global market. In Davos, we had been talking about Ukraine as a country with added value and strong foothold in agro, IT, and other industries for two years now.
Providing consulting services to western clients is extremely complicated. One needs to establish a great brand awareness and strong reputation, show off a grand experience, and successfully implemented projects.
Speaking about consultancy provided by Innovecs, blockchain and machine learning expertise is greatly sought. Solutions powered by emerging tech are acquired regardless of geography.
In the Ukrainian market, McKinsey is the only company from the Big Three list, while Innovecs has a tough competition. What would you advise to stand out and win the game?
Alex Lutskiy. The competition is very intense in the IT field, but it is the same for other industries too. Whenever demand increases, everyone strives to fill the niche. To enter the service market, one will not have to pay a high price. Therefore, the number of competitors keeps augmenting, but the amount of those who can boast an expertise and value is much less, since business requires investments, experience, and a strong international team. So, we take more interest in clients who see us as a strategic partner and know what an added value is and why it should be paid for.
We aim at building a highly proficient service company with a distinct expertise and unique brand identity for both clients and employees.
My advice on achieving success is totally based on the Innovecs work standards. First off is a client-centered approach and a level of service delivery. Secondly, it is management. Draw focus to corporate culture. It is a strong and ambitious team culture that engages the best talent and encourages them to grow. And finally, these provide a strong reputation and brand, helping any business scale up.
Georges Massoud. One should stick to a simple methodology. Choose your target market, and then define how you can stand out, what benefits you can suggest, and be aware of what message you want your clients to receive from you. When rendering services, you should give it your all and put client needs over your own.
What has led your companies to success?
Alex Lutskiy. Everything revolves around a corporate culture. It favors self-motivation, high commitment to achieving quality outcomes, engagement, and desire to attain the goal.
Team and trust are two more factors essential for the progress of a company. Establishing open relationships with industry experts who are keeping up with a company pace, embracing its transformations, being ready for turbulence and change, and facing challenges creates a proper balance inside Innovecs. Today, companies compete by developing the most effective business models rather than by showing off their products.
Georges Massoud. I think that our decision to set up a Kyiv subsidiary in 2009 has contributed greatly to the company’s success. Those were tough times, taking into account the world crisis, Ukraine’s GDP decreased by 15%. So, we took the best advantage of the situation to show that we were determined to invest into Ukraine and support it, the country with an enormous potential. In 2014, we decided to stay, while many chose to quit. It was a crucial step for us based entirely on our company values. One of them is to put client needs over our own. Successful consultancy business is impossible without following this approach. Attracting large talents and developing them is another value we highly appreciate. People are central, after all. We hire only a minimum number of those applying for jobs. Our employees are special. High professional standards is another constituent of our corporate value system.
Working as one single company globally is another of McKinsey’s distinguishing trait. I hold a position of a Managing Partner across Chile, New Zealand, and Canada. I work in Kyiv, but my role expands worldwide. Simply put, I can reach out to any consultant with the required expertise no matter his or her location. We have 28 thousand employees on board overall. With subsidiaries residing in 130 countries, McKinsey is one of the few companies that has managed to make an employee location really insignificant.
You are both world citizens. Why have you chosen Ukraine?
Alex Lutskiy. I have come back to Ukraine after 17 years in US where I had big career prospects and my own business. I started my career in US in early 90s as a software engineer and, later, held managing roles in a few US-based companies. Then, I received a Vice President job offer from GlobalLogic in Ukraine. The experience gained prompted what service, knowledge and products were required and what extra benefits we could offer to clients. This is when an idea to found Innovecs emerged. Here in Ukraine, I see an abundance of opportunities for successful business growth. Kyiv is a comfortable place to live in. There is hardly a client who would not enjoy visiting Ukraine.
I am absolutely convinced that Ukraine is the right country for service businesses. It is home to many talented software developers who are skillful enough to compete with tech experts from Western countries. They can quickly find a common language with clients that have similar cultural values.
Georges Massoud. One of the biggest competitive advantages of Ukraine is an enormous talent pool. Ukraine ranks first in Europe in the number of engineering graduates—130,000 specialists graduate annually. It boasts the biggest black-soil area, which is large enough to feed the entire world. The list of Ukraine’s capacities can continue—it depends on how you approach it. I am very optimistic about Ukraine’s future. It is capable of filling the 10-year gap in development and achieving Central Europe living standards. It is a great country with an untapped potential.