It’s substitute management. It’s political, so if you make a decision, you can say, “It’s not my fault, it’s their fault”… I think consultants can become a disease for corporations. Most consulting engagements weren’t worth the price paid, but McKinsey — well, it was the real thing.
Four years later, the Republican candidate for president, once a consultant himself, was asked how he would reduce the size of government. “So I would have… at least some structure that McKinsey would guide me to put in place,” Mitt Romney told Wall Street Journal. When his audience seemed surprised, he added, “I’m not kidding. I probably would bring in McKinsey.”
The abstract, white-collar nature of modern business — the fact that the greatest value in our economy is now created by people sitting in air-conditioned skyscrapers and corporate parks who manipulated information — is a reality that McKinsey was instrumental in establishing, championing, and profiting from.
What do they actually do? They are managerial experts, cost cutters, scapegoats, and catalysts for corporate change. They are the businessman’s businessmen. They are the corporate Mandarin elite, a private corps, far from prying eyes, doing behind-the-scenes work for the most powerful people in the world. How do they do it? Well, their methods have been compared to the Jesuits, the US Marines, and the Catholic Church. They feel so strongly about themselves that they have insisted on a proper noun where one needed not exist. To an outsider, they are a consulting firm. To themselves, simply, The Firm.
McKinsey’s clients, especially those in the executive suit and the boardroom, have gotten an extremely intelligent if high-priced sounding board, a beacon in the night of managerial uncertainty. McKinsey offers a kind of industrial espionage couched in the language of “best practices.” Want to know what the competition is up to? Hire McKinsey. After all, it’s working with everyone else as well. The flip side of that argument is that you competitors find out about you too. But most clients have found the tradeoff rewarding.
With McKinsey’s army of hardworking and youthful overachievers — what one reporter called “a SWAT team of business philosopher-kings” — clients have surely gotten more effort per dollar spent than you might find anywhere else in the corporate milieu.
In a word, McKinsey sells its own enlightenment, the firm’s ability to see things more clearly than its clients. Doing that once is no great accomplishment — a fresh perspective is the way out of many problems, in business or otherwise. Doing it for nearly a century is a tall order indeed, but it is one that McKinsey has apparently met.
When a CEO hires McKinsey, he knows he is hiring some of the smartest and hardest-working people worth opening the corporate checkbook for. Insight can — an often does — come from extreme analysis, and there is no better army of analysts in the world than McKinsey’s.
First, McKinsey saw that a company’s secrets could be found in its accounting. He proudly wrote books about the minutiae of budgeting and forecasting, because he believed it was only through rigorous adherence to such “fact-based” analysis that a company could truly reach its potential.
With his own experience as a proof of concept, McKinsey attracted a cohort that wanted to achieve in life the same thing he did — rising above an often humble upbringing to become rich and important men. McKinsey pursued success by combining an ability to focus relentlessly with a knack for breaking rules.
In the running of a company of whatever size, the hardest thing to manage is usually this: the delicate balance between the necessity for centralized control and the equally strong need for employees to have enough autonomy to make maximum contributions to the company and derive satisfaction from their work. To put it another way, the problem is exactly where within the company to lodge the power to make different kinds of decisions.
The unintended effect was to accelerate the creation of an informal — but legal — way of sharing information among oligopolist. Who could do that? Consultants.
Regulatory efforts paid another rich benefit to the likes of McKinsey: Restricted from cutting backroom deals with each other, firms were thus obliged to actually compete, which meant they needed to make their operations more efficient. Here again, consultants were the answer.
Empire builders like Carnegie, Duke, Ford, and Rockefeller had built huge, vertically integrated companies, but they had neither the time, the talent, nor the inclination to create and carry out management systems for those entities. These were the conquerors of capitalism, not its administrators. And yet, their strategies of expansion, consolidation, and integration demanded structural changes and innovations at all levels of administration.
Up to that point, budgeting was a one-way exercise: Accountants added up all of a firm’s expenses and then tossed in a sales projection almost as an afterthought. In McKinsey’s view, companies should start by developing their business plan, figure out how to achieve it, and then estimate the costs of doing so. In this new context, budgeting wasn’t just a ledger activity; it could also be used to identify excellence in performance, to spot weaknesses, and to take corrective action.
It is hard to overestimate the impact of the General Survey Outline (GSO). It served as the foundation of his approach to understanding a company and provided novice consultants with a clear road map to do so themselves. The survey also shaped consultants’ thinking: The emphasis in the GSO was more on why managers did things, as opposed to how they did them. Using the GSO, consultants started every engagement by thinking of the outlook for the industry of their client, the place of the client in the industry, the effectiveness of management, the state of its finances, and favorable or unfavorable factors that might affect the future of the firm. No details was too small to take note of, whether it was a study of all firm policies — including sales, production, purchasing, financial, and personnel — or an analysis of whether the layout of equipment in a company’s plant provided for the most effective flow of the production operations. By the time the young consultant had completed the survey for his client, he knew the company and its business cold.
Usually, I find that the executive who says he does not believe in an organization chart does not want to prepare one because he does not wish other people to know that he had not yet thought through his organization properly. For the same reason many men are opposed to budgets. They are unwilling for anyone to see how little they have thought about what they are going to do in future periods.
I have to be diplomatic with our clients. But I don’t have to be diplomatic with you bastards.
He pinned original sin on Frederick Winslow Taylor, the father of “scientific management.”
Taylor’s famous time-and-motion studies used stopwatch analyses of manual labor with the goal of shaving seconds off rote, repeated activities, thereby enhancing productivity. There was, Taylor argued, just “one best way” to produce anything, and a manager armed with Taylor’s tools could identify it. In Stewart’s account, Taylor was a pseudoscientific proselytizer who promoted the spurious notion that “laborers are bodies without minds, managers are minds without bodies.”
But Taylor’s ideas about improving the efficiency of labor were very popular and influential in his day. Edwin Gay, who opened the HBS, was a Taylor disciple. Henry Ford’s line production system was a pure distillation of Taylor’s thinking. Even Lenin and Trotsky embraced him, envisioning Taylorism as the solution to Russia’s problems.
Their specialty, at the end of the day, was not the management of business, but the business of management. And as in any business, what separates the winners from the also-ran isn’t independently verifiable expertise; it is the ability to move product.
He claimed to have taken “every important banker in Chicago or New York to lunch,” with the result that “nearly every one at one time or another has given me work.”
While long on ability to intellectualize their way out of a business situation, they often come up short on the human factor. It’s why words like “restructure,” “downsize,” and “rationalize” have found their way into the modern business lexicon, all elegant euphemisms for laying people off. Management consultants may bring value to a company’s bottom line, or to its executives’ bank accounts, but they are rarely accused of adding value to the life of the rank and file.
The job took a serious toll on McKinsey himself. Contending with day-to-day implications of this harsh prescriptions, he became depressed and physically run donw. “Never in my whole life before did I know how much more difficult it is to make business decisions myself than merely advising others what to do.” McKinsey soon found himself cutting whole divisions, retiring people early, and firing veteran employees.
Bower chose to use the experience as a learning opportunity, realizing that it had perhaps been a little brash to expect the client to take such criticism from a man half his age. It wasn’t that he thought his thinking was wrong; it was how he had delivered it, and the fact that he hadn’t consulted with James McKinsey first. Bower translated the lesson into one taught to every McKinsey consultant to this day: Deliver the bad news if you must, but deliver it properly.
In the decades that followed, Bower molded McKinsey into just the firm he had envisioned as a young lawyer: an organization that enjoyed the same prestige and influence as prominent law firms but didn’t spend time on the boring stuff. In other words, a law firm that didn’t practice law.
He felt that everyone who sought success want criticism, and he really gave it. Most of his criticism was negative. Indeed, his praise was so occasional that it made a deep impression when it was given. This approach appealed to me. I have found that when praise is evenly balanced with criticism, only the praise is remembered.
First and foremost: Everything was sacrificed at the altar of the client. The client, the client, the client. Bower saw himself as little more than a servant to client interests. In building a firm of like-minded individuals, he also build a paradox or remarkable proportions: Marvin Bower and his colleagues were going to become the most successful and influential servants in history.
The main reason for his success is a quality often overlooked in the corporate world: a willingness to repeat himself. He spent 50 years of his life saying the same things over and over again. “He never deviated from his message. Being a great leader is often less a matter of eloquence and more a matter of repetition and consistency.”
First, Bower had to invent the McKinsey persona: The McKinsey consultant would be selfless, be prepared to sacrifice money and personal glory for the sake of building a stronger firm, never look for public credit, and always be confident and discreet. British foreign secretary William Hague, a former McKinsey consultant, put it this way: “You are encouraged to believe that you belong to a special club of elite people.”
Instead, Bower sold his shares back to the firm at book value. In doing son, he demonstrated precisely the kind of allegiance to the cause he expected of anyone wishing to be successful at McKinsey: He forsook considerable riches for the good of the institution, in the process giving young consultants the ability to buy their way into the partnership without mortgaging their houses to do so. His McKinsey would be self-perpetuating, and he gave up a fortune to make it so. But he also sent the message that working for McKinsey was like joining a special order of men willing to put the higher cause of the firm ahead of self-interest.
What does it take to succeed at McKinsey? Outstanding metal equipment finely honed by a first-rate education, coupled with the imagination to solve complex problems; the self-confidence, skill in expression, and sensitivity to other people that lead to high personal effectiveness; and, of course, good character and high standards.
Management consulting is too complex an art to be explained effectively in the limited space of an advertisement. About all a consulting firm can talk about effectively is the extreme high competence of its personnel. The effect might be come what similar to the Roman Catholic Church’s taking two pages of Life to advertise God.
First, said Bower, “the successful consultant has a personality that causes most people to like him.” And with that likable personality, the McKinsey consultant should make his way into his community’s establishment: He was expected to join local boards, get involved in charities, and even attend church. This was community relations as business strategy, another manifestation of Bower’s pragmatic idealism.
Second, the McKinsey consultant had to inspire confidence with his appearance. Bower’s writings are full of physical descriptions of people he hired in part because of how they looked. One former McKinsey consultant said that the notion that one was “clubbale” — the type to be asked to join a high-end social club — remained an explicit characteristic of McKinsey hires.
And McKinsey consultant was usually tall too. One rival consultant suggests that McKinsey has long hired taller-than-average people for the sole reason that history has shown people pay more attention to them.
Bower enforced an unyielding dress code: dark suits, hats, and garters. Long socks were required because Bower abhorred the sight of “raw flesh.”
Bower once explained the rationale for his sartorial standards. “If you jobs is to help a client have the courage to follow the trail indicated by the facts, you need to do everything you can to minimize the distractions and deviations the client is likely to take. If you have revolutionary ideas, they are much more likely to be listened if you do not have revolutionary dress… If you were an airline passenger, and the pilot came aboard the plane and he wore shorts and a flaming scarf, would you have the same confidence as you did when he came on with his four stripes on the shoulder? Basically, the dress code all has to do with what you want to do, when you want to build confidence and an identity.”
Most McKinsey reports begin with a page titled, “Today’s Discussion.” It’s a brief of what the consultants hope to get across to the client, presented in outline form, and it shows not just how McKinsey presents but how its consultants are taught to think: in logical, well-structured, and easy-to-follow steps. A McKinsey consultant, according to the Bower way, was never supposed to put his personal stamp on anything.
Why did it matter? Because unlike other professions — law, medicine — consulting was obviously built on pretense, where dress, manners, and language were meant to present some notion of capability that wasn’t there to see on a diploma.
This was not only satisfying people’s desire to better themselves. It was also praying on the insecurity of keeping up with the Joneses. McKinsey offered the former, but the implicit sell was the latter.
McKinsey insisted that it would wok only for the CEOs and not be shunted off to their underlings. Anything that wasn’t important enough to involve the CEO wasn’t important enough for the consultants. This had the added advantage of freeing McKinsey from having to offer specialized, technical advice. CEOs didn’t have time for such intricate details, so McKinsey didn’t bother with them either. This became a major piece of the firm’s identity: Narrow expertise is for chumps; we do vision.
It sells the credit to its clients. And it’s a good idea. What manager would want to hire someone looking to take credit? In exchange, though, McKinsey does not take responsibility for what a firm does with the advice it receives.
Some men aren’t satisfied unless they have caviar. Moses would have been happy with a ham sandwich — and power. But Bower didn’t want caviar or power. He wanted influence.
He wasn’t a hell of a lot of fun, but he was the most single-minded person I have met in my life.
In the 1960s, GE had 190 separate departments, each with its own operating budget. Overseeing these massive corporate entities required managerial expertise that simply did not exist. This was McKinsey’s great opportunity. Its consultants became anthropologists of a modern and evolving social organism called the corporation. They were the first ones to truly understand how this human machine worked.
Difficult problems don’t yield to an ‘aha!’ moment. Instead, there is the sandpaper, sandpaper, sandpaper theory of progress. We helped them come up with new way of evaluating and rewarding performance, but it took us 18 months of hard work.
The idea was simple: It was easier to mold a young mind than to change an older one. “Harvard doesn’t teach you accounting or finance, they teach you how to be convincing.”
Most people are convincing when they mean what they say. But Skilling was referring to the remarkable subset of American society known as the insecure overachiever. “Why do people work there? They recruit from the pinnacle of education system — Harvard, Berkeley, Yale Law. The people at these schools are driven by desire for status and fear of failing. You have spent you life trying to get into the best schools and being the best at everything you do. When you graduate, you reach that terrifying point in you life when the next thing you do is not obvious, when there are a lot more choices than before. McKinsey makes it very easy for people whose primary goal is to keep their options open. A lot of people in this situation don’t know what they want to do with their lives.” It doesn’t end there. In a true “profession,” one’s legitimacy rests on an actual body of knowledge. In consulting, it’s mere insecurity mixed with arrogance. The degree to which juniors at McKinsey are bullied is actually quite shocking, if not necessarily unique among professional services firms.
About a quarter of business school graduates now begin their careers advising experienced executives how to run their businesses.
It is on account of this pyramid principle, of course, that under normal circumstances the opportunity to become a partner in a respectable firm arises only after 8 or so years of youth-destroying labor. And in the end, just about everyone who plays the game is a loser.
At McKinsey (as at other consultancies), one is generally promoted from associate to principal on the basis of one’s ability to analyze and present data. But thereafter, one is promoted almost solely on the basis of one’s ability to sell the firm’s services. It’s the only job I can think of where you start in general management, and then, if you’re successful, you end up in sales.
Mind you, that didn’t necessarily mean they contained anything that might shock the client. Most McKinsey engagements begin with the consultant asking the client CEO, “What would you wnat to get out of this project?” In other words, conclusions can be preordained, or, at the very least, arrived at with no surprises along the way. McKinsey always sit down with the client to discuss the work in progress several times during an engagement. Consultants call this process pre-wiring. But it’s also a rare thing indeed that the final presentation includes anything at all that the CEO didn’t see coming, despite the fact that this files in the face of the whole truth-telling self-image.
McKinsey may surprise its clients with the rigor of its research, but it rarely surprises them by offering a conclusion the client didn’t play a part in arriving at. The firm is not admired for revolutionary ideas; it is admired for its systematic approach to forcing multiple hypotheses to survive or wilt in the hot glare of factual reality.
The great open secret of the McKinsey business model is that a large part of its success has come by reselling the insights of others. The primary product McKinsey sold, for several decades, was customized version of the decentralized, multidivisional organizational structure pioneered by the likes of DuPoint. Clients know this. In fact, the often engage consulting firms for the very purpose of finding out what the competition is up to. As Mckenna has stated so plainly: “Consultants will carry information in and information out. The client has to decide which of those flows is worth more.”
Henderson’s insight was to package product portfolio management in an easy-to-consume form. His now legendary “growth-share matrix” suggested that executives look at the products as one of four types: a cash cow, a rising star that needed that same cash to grow, a dog that needed to be put down, and a question mark that needed further study. By reducing a complicated corporation to a simple, one-page chart, Henderson had out-McKinseyed McKinsey. Major decisions could be made with clarity and confidence.
Strategy was the answer to the end of the decentralization era. Most large companies has already reorganized. What top management needed now was justification for their own nonoperational jobs. Companies might actually make or do something real at the end of the day, but the self-reinforcing management / consulting relationship lived in its own parallel universe.
McKinsey had become a luxury brand, and luxury brands do not apologize or explain. Considered in that light, the firm’s high fees were justified for the own sake. Said a colonel in the US Air Force, a McKinsey client at the time: “Consultants lend a lot more credibility to what you’re doing. A fellow who works for us at a billing rate that amounts to $166K a year is making ten times my salary. This lends him a certain amount of stature. You can use a consultant as a communication aid.” In other words, when you hire McKinsey, your employees should know that you’re not kidding around anymore. Still, it’s a costly communication aid: McKinsey charged clients three times what it paid its consultants, to cover salary, overhead, and profit. In that light, there’s another way to look at it: Hiring McKinsey was a sign of affluence.
Marvin Bower had predicted that the surest route to elite status was to act as if you already were elite.
Carnegie was the typical McKinseyite. He didn’t just to to Oxford; he rowed varsity crew. He didn’t just got to HBS; he became its top-performing Baker Scholar. And he didn’t just join McKinsey; he became the youngest director in its history. But he eventually tired of the company self-satisfaction. “It was a question about what they wanted to do. There was no gripping vision which led everybody to feel that this was a place that could really take a next major step forward.”
The 1970s were not merely an inflection point for the American economy; they were also an inflection point for the American self-image. Company Man finally looked in the mirror and saw what others had long seen: Conformity has its costs, and the flush postwar years had left him fat and lazy. The era of managerialism was coming to a close, to be replaced by a more aggressive, less genteel era of so-called shareholder capitalism.
Executives at private companies have occasionally tried to publicly pin their problems on their consultants, but not often, in large part because it might raise the issue of their own competence. Politicians face no such constraints. Savvy cabinet ministers in England love shifting blame to consultants, especially when they have to lay off government workers.
After the oil crisis, many corporations concluded that long-term planning was meaningless and that BCG had the antidote — a cold, hard look at the present state of affairs. BCG and Bain were the Apple to McKinsey’s Microsoft.
Consultants at Bain & Company referred to “the million-dollar slide” — a single chart or graph that told a company so much about itself that it was worth a million dollars in fee. For all the rhetoric about the “strategy revolution,” companies continued to make the same mistakes they’ve always made despite having paid through the nose to chart their bold course into the future. “The most reliable way to make money from strategy is to sell it to other people.”
Strategy as it is sold by consulting firms, is essentially a pipe dream. Why? Because you can sit in a boardroom and plot all you’d like, but once the game has started, it’s pretty much improvisation from that point forth. The best companies are efficient and effective, and they do well because their people are trained to do their jobs. The hardest thing in any big organization is to keep execution discipline in the forefront. There is a huge usefulness to that kind of consulting — process improvement — versus the elusive promise of big breakthrough thinking. The idea that executives need to be smart and heroic is a new invention. The essence of efficient management is hiring and training unheroic, ordinary people to play by certain rules. You need to take care of that before trying to create leaders or heroes.
McKinsey people are very sharp analysts; there’s no doubt about that. And that’s what you should look for when you hire them — analytical advice. They may couch it as managerial or strategic advice, but it’s merely analysis. You won’t hear it from them, but strategy is a learning process; you can’t just buy it from someone. Any CEO who hires a consultant to give them strategy should be fired.
I think that the Firm’s market success in the 1960s had developed into a sense of smugness and self-satisfaction that was counterproductive.
And this gets at what has been one of McKinsey’s enduring competitive advantages: the firm’s ability to build enduring relationships with its clients’ CEOs and then use those relationships to spin off study after study. This is something that no other consulting firm has been able to do nearly as well.
Bower understood that selling shares to the public at a multiple of earnings (as opposed to selling back to his partners at book value) was a surefire way to become very, very rich. But it also created classes of haves and have-nots that most likely would eventually lead to the dissolution of the firm. That he chose not to do so is perhaps the most important road not taken in the history of the firm. “Marvin not taking McKinsey public is like George Washington refusing the title of king — it did not match the founding principles.”
It wasn’t just Wall Street that was pushing up the cost of talent. Corporate executives, who up to that point had shown a “sense of stewardship and moderation” about their pay, started grabbing a larger proportion of company profits for themselves. McKinsey consultants, accustomed to considering themselves equal, if not superior, to their client executives, were suddenly the poorest players at the boardroom table.
People were always trying to claim that their enduring was more enduring than your enduring. If you didn’t bring in clients, you argued your enduring contribution.
Consultants once prided themselves on being generalists. You went to your client and said, “I don’t know anything about your business,” and that was a strength. If you said that to a client today they would think you were in the wrong movie.
Up to that point, the firm’s style had sprung directly from Bower’s lawyerly roots, and his insistence on dense, highly structured, wordy presentations was still the model.
Minto’s principle wasn’t about pretty pictures or overlapping ovals. It was about laying out conclusions and supporting data and analyses of a study in a structured way that presumably wouldn’t overburden the already strained intellectual resources of the average CEO, whose available time for the consultants’ presentation and attention span during that presentation were often denominated in minutes.
And whereas Bower and his contemporaries believed that their management consulting had contributed to society in many ways, including as a bulwark against Communism during the Cold War, a new agency theory arose suggesting that if a corporation is merely a sum of contractual arrangements, then the managers have no claim to the idea of social good. They are pretty much just looking out for themselves. There’s nothing wrong with that, but it certainly contradicted Bower’s ideal of the professional consultant.
As the narrative was revised, managerial capitalism was portrayed no longer as the key to America’s economic success but, rather, as a liability. Corporate takeovers came to be seen as a means of restoring power to the group now believed to be the only one with a legitimate claim to the value created by corporations — shareholders.
There really no such thing as “shareholders” as a coherent entity. “Shareholders” is code for “Wall Street,” and starting in the late 1970s, that’s where power began to be concentrated. Corporate boardrooms were not where the action was anymore.
He cautioned against talking down to outsiders, displaying McKinsey arrogance in the process: “This version gives me the feeling that we are simply superior people. I think we are, but hate to see us say so.” More important, he killed the sacred cow: “We would like people to consider us a profession (we are not, of course).” It was all a construct, he was saying, and unless McKinsey was careful, people would see right through it.
Bower’s view of McDonald seems myopic in retrospect, another piece of evidence that he was losing sight of the plot in his final years. In reality, Bower was merely fighting the fight that all great leaders eventually must, which is the decline of one’s own relevance. What’s more, for all the strong values he had instilled in the firm, he had never been very good at anticipating changes in the business world. When he stepped down as a managing director, the firm was woefully ill prepared for how hard its business was about to become.
Through his tenure, as the media fascination with McKinsey grew, Daniel kept an extremely low public profile. “We can’t see how it serves the firm’s interests. Besides, we’re kind of a dull, anonymous bunch, and we cannot talk about our clients.”
Some problems are solved once and solved forever. Others are piano-tuner problems. McKinsey decided that the real money was in the latter. One great trick was to issue a progress review at the end of any study — raising the implication that the completed work should necessarily lead to further work. An internal joke at the company: “A transformational relationship is where we transform their money into our money.”
One thing Gluck didn’t want to do was merely mimic BCG. “People were saying, ‘What we need, Fred, is not a lot of complicated stuff. We need a conceptual supernova, a direct response to BCG’s matrix. And I rejected that notion. That was exactly what we didn’t need. We want to help our clients solve the problems they have, not the problems we know how to solve. We don’t want to be a solution in search of a problem, and that’s what the four-box matrix was. That’s what the experience curve was. Sometimes they worked. And sometimes they didn’t.”
“I said we should forget about trying to do what BCG did. That we should tip our hat to them for what they accomplished, and then get on and do what we do best, which is to understand our clients’ strategic problems and bring our extensive knowledge and experience to solving them.”
McKinsey’s efforts in this area would take the firm into uncharted territory: popular culture. The holy grail of the consultant is an idea that attracts clients but is still vague or complex enough that they need your help in carrying it out. This is why consultants are great progenitors of buzzwords, ideas like scientific management or lean production or reengineering. If it’s got its own name, you probably want to hire the expert on it, don’t you?
McKinsey was as cool as it gets at the time. If you didn’t have some grand desire in life, it was the place to be.
Far too many managers have lost sight of the basics — service to customers, low-cost manufacturing, productivity improvement, innovation, and risk-taking. In many cases, they have been seduced by the availability of MBAs, armed with the ‘latest’ in strategic planning techniques. MBAs who specialize in strategy are bright, but they often cannot implement their ideas, and their companies wind up losing the capacity to act.
While sales of the book have held up well over time, many of the “excellent” companies have not.
McKinsey has a stratospheric belief in itself. If intellectual arrogance had not yet been invented, it would have been invented for that crew.
He just said it. Three thousand speeches and sixteen books is exactly what we meant. He’s undisciplined. He should have focused on two clients and one book.
For what it does, McKinsey is probably the best in the world. But in the grand scheme of things, maybe what it does just isn’t as important as it thinks… McKinsey thinks it sells grand strategies and big ideas when really its role is to keep management from doing a lot of dumb things. They do great analysis, but it won’t get your company to the top.
The Germans couldn’t understand why someone in authority would pay someone else to tell him what to do. Many of our German friend concluded that McKinsey was nothing other than a front for sex consultants.
You want to prove yourself? Do something completely entrepreneurial, like opening a new office.
In a company overflowing with big egos, Ohmae managed to stand far above the rest. This was a man prepared to draw up a manifesto for the government fo the entire world, after all. “I didn’t know Ohmae,” said one former McKinsey consultant who overlapped with him. “But everyone tole the story that when you met him, you would realize that you were talking to the smartest person that ever lived. And that’s because he would tell you that it was so. It was cause for great ridicule.” It also drove many senior partners to distraction that Ohmae had a bodyguard, who sat all day long with a thick pistol on his desk for all to see.
Do you know when you’re making too much money? When you need someone else to manage it for you.
There are only three great institutions left in the world: The Marines, The Catholic Church, and McKinsey.
There is no institution on the planet that has more integrity than McKinsey and company. We don’t learn from clients. Their standards aren’t high enough. We learn from other McKinsey partners.
Hall was notorious for passive-aggressive office-speak: he pretended to engage others but was not really interested in doing so. He would suggest that colleagues “rise up a few levels of abstraction with me” or “invite” them to reconsider their position.
The real competition out there isn’t for clients, it’s for people. And we look to hire people who are: first, very smart; second, insecure and thus driven by their insecurity; and third, competitive. Put together 3,000 of these egocentric, task-oriented people, and it produces an atmosphere of something less than humility. Yes, it’s elitist. But don’t you think there has to be room somewhere in this politically correct world for something like this?
People who ask who our greatest competitors are… it’s our clients. Their first choice is not McKinsey or someone else, it’s hiring anybody at all.
When McKinsey is at its most effective, it thoroughly identifies and analyzes a problem for its client, enumerates all available options, presents them in easily digestible fashion, and then helps the client choose a course of action.
While it may seem simplistic, the job of a CEO is to keep his own job. Even your most reliable lieutenants have a tendency to stab you in the back. So the smart CEOs hire expensive lieutenants in the form of consultants. Even if consultants have long been accused of fomenting uncertainty rather than eradicating it, the life span of current CEOs impels them to ignore that deleterious side effect, while simultaneously extending their own tenure.
McKinsey may proclaim its capability to tell truth to power, but in reality it rarely bites the hand that feeds it.
Few clients are going to hire McKinsey then say the consultants weren’t worth it. In a sense, the firm is a spiritual relative of “La Belle” Otero, a courtesan living in Paris who was once considered the most sought-after woman in the world. It was widely argued that everybody who had the means had to have her at least once. And once you’d done that, what could you say? Once you’d paid a million franc for a roll in the hay, you weren’t about to admit it wasn’t worth the price paid.
But is it such a surprise? These are not people who have ever run anything. These are people who have spent their lives talking to high-level executives. And what do high-level executives know about making things? Not much, usually.
They have follow-on work not just because they’re good at what they do, but because they are trained in how to manage these kinds of client relationships. They understand that the core reality is the relationship and the conversation, and that any particular engagement is merely epiphenomenal.
We’re not selling time and answers, like law or accounting firms. We’re selling a benefit called change. Change is where the value is.
And that brings the focus back to the difference between the elusive promise of big-picture, blue-sky thinking and the true value that a consultant can almost always provide. Real consulting isn’t about change or leadership or vision. It’s about helping people manage what one might call Industrial Prussianism — organizing activities through highly rational bureaucratic routines that promote effectiveness, efficiency, and honesty. The Prussians beat the French in 1871, but not because they had inspired leadership. They won because their system was based on rules, orders, and norms that allowed their army to run efficiently and without the need for heroes. Likewise, Industrial Prussianism skips the heroes and focuses on efficiency and frugality, with training and accountability. The only point of strategic planning is to think through all contingencies in advance so as to make fewer tactical execution errors; he who makes the fewest and has the best-organized and best-trained troops wins. The companies that survive, like the best armies, can recover from unexpected blows of fate and competitor breakthroughs.
Even today, the best consultants are ex-engineers, not perfectly designed social operators with a Harvard MBA. Engineering teaches you to define your solution space, determine the relevant levers you can pull or push, and then find your solution. Strategize all you want, but if your processes aren’t well oiled, you’re a goner.
There’s that disconnect from ultimate responsibility again. McKinsey doesn’t ask for credit, but it won’t take the blame. Kanarek saw nothing wrong with this arrangement. “We have a different form of responsibility. But we are also disconnected from the rewards. If our advice is consistently bad, the client will stop using us. Bu there have been many more times where the advice has been good and clients and shareholders get wealthy and we do not. Our rewards are damped because that’s what being a professional is all about. Theirs are higher and lower because they are the real players. Whenever someone in McKinsey tells me they think how to run a company, I tell them to go do it. Because that’s not what we’re doing here.”
While McKinsey may have a problem with public use of its name, it doesn’t have any whatsoever with corporate executives using the firm to provide justification for a major decision.
One reason for this success is the firm’s self-confidence. McKinsey is all about confidence. The McKinsey sales pitch is a simple one: “Whatever your problem is, we’re the smart guys that can help you fix it.”
Marvin Bower told his proteges that the secret to success was to act successful. He wasn’t just talking about McKinsey. He was talking about a specific kind of American confidence that allowed the country to conquer the economic globe to a degree that is only now being called into question, some fifty years later. The country has that confidence — or it used to — and McKinsey expressed that as totally and fully as any company the world has ever seen. So it made mistakes. It could fix them. And it did.
Another reason the firm has been so successful is that it has peopled the global business community with alumni and friends — all of which it treats very well. Like almost no other firm in existence, McKinsey becomes a part of its people’s self-image. Years after leaving the firm, ex-consultants still use “we” when referring to McKinsey, even in the present tense.
McKinsey is certainly the most efficient producer of CEOs the world has ever seen. Perhaps the only alumni network with more reach and lifelong relevance to its members is that of Harvard University. And there’s no small amount of overlap between the two.
Think about that. To calculate the return on investment of a project that’s still in R&D means you’re projecting sales way out into the future. You can project anything you want, which makes it a totally useless way of selecting projects. The way you should select R&D projects is based on what it does to your competitive position. Or whether it opens up a new market to you.
“We don’t have to locate the bathroom,” he quoted one accountant as saying. The McKinsey retort: An accountant who knows where the bathroom is located may be unable to recognize that the bathroom should be located elsewhere.
It had always been Marvin Bower’s contention that McKinsey had no competition. As the years went on, the more right he became: If your direct competitors can bill at only 60 percent of your level, are they really even competing with you?
Still, as recently as the late 1980s, McKinsey’s fee arrangement with clients remained shockingly informal. The firm did not deign to explain to clients like Federated Department Stores how it arrived at a fee of $200,000 a month plus expenses — it was a take-it-or-leave-it proposition. In an interview with Fortune, Amsterdam office manager Mickey Huibregtsen said that the high fees were in the best interests of the company’s clients as well as McKinsey, because “they protect us from not being taken seriously by the client and that protects the client from having the wrong studies done. It also protects the quality of the work. When you charge that much, the quality has to be there.”
McKinsey was equally sure of its superiority to its competitors. Let’s say a client asks us what time it is. If you ask Booz Allen, their response will be “What time do you want it to be?” If you ask A. D. Little, who are more technical, they will tell you that “It’s 9:45:20, GMT.” But if you ask McKinsey, we will say, “Why do you want to know? What decision are you trying to make for which knowing the time would be helpful?”
Rethinking the way one does business is a hallmark of the American success story. Despite the brutal implications at the individual level, one of the primary differentiators between American companies and their foreign competition is the ability to lay people off with relative impunity.
Today McKinsey positions itself as the repository of all business information and theory worth knowing.
We had a saying at Bell Labs that with just three phone calls, we could reach the expert in any technical subject, anywhere in the world. And much of the time he or she would be at Bell Labs. My ambition for McKinsey was to be like that. That’s what drove me.
You have to give credit to Gluck for basically saying, “Look, you should have as deep an intellectual understanding of your industry and the functional areas that support it.” If you have those, you will serve your client well. I helped create a multiyear, $30M knowledge effort in broadband. That’s way outside of investments that BCG or Bain would make.
McKinsey always had great conceptual frameworks for analyzing problems. But what was better was that you could go to a place like Argentina and have market analysis done by people with familiarity with the market — Argentinians — but that had been American-trained. It’s astounding to me that they can run a global firm the way that they do. All management consultants are prima donnas who want to solve things their own way with their own conclusions. But McKinsey has an impressive discipline across the globe aroudn how they approach problems, as well as the rigor that they use.
This is a sentiment repeated by many McKinsey consultants with a heritage in the recent past: The fruits of rigorous training and indoctrination meant that McKinsey could gather eight different consultants from eight different cities across the globe and it would take them just five minutes to get organized around the need of any project. It’s really a miracle, and it took decades to get to that point.
So too was there a CEO factory in the country — McKinsey. The network is without a doubt the most powerful the world has ever seen. “You don’t realize it until you’re gone.”
Never underestimate the lemming-express effect that obtains among students at “top” business schools and colleagues. You compete to get into the most prestigious college. Then you compete to get into the top-ranked business school. After you’ve learned and displayed so much independence of mind, what’s left but to compete to be hired by the employer all your peers were clamoring to join?
This is a knowledge-intensive business, not a capital-intensive one.
He could process information and conceptualize new ideas with blazing speed. He could instantly simplify highly complex issues into a sparkling, compelling image. And he presented his ideas with a certainty that bordered on arrogance and brooked no dissent. He used his brainpower not just to persuade, but to intimidate.
McKinsey has its values in the right place. You feel like you’re doing God’s work when you’re there.
If you walk the halls here, people have a mission. The mission is we’re on the side of angels. We’re taking on the entrenched monopolies. In every business we’ve been in, we’re the good guys.
While the firm would never admit as much, under Gupta, McKinsey began working for just about anyone with a fat bank account and a checkbook. From the days of James O. McKinsey, the whole idea had been that McKinsey could secure its place at the top of the consulting pyramid by working only for companies at the top of the corporate pyramid.
The majority of people who lose in McKinsey elections don’t leave the firm in a fit of pique. “Where would they go, anyway?” asked a former partner. “If you’ve been at McKinsey for 25 years, you’re making $3M to $5M a year. There are not a lot of places you are going to go to, unless someone is going to make you CEO of a major company.”
Davis was touted as the “values partner.” He was widely regarded for his forthrightness, as well as his ability to ground most conversation about McKinsey in an expression of some core value of the firm: client first; the need to take on sensitive issues directly; and the importance of keeping the firm’s most valuable asset — its people — focused on the highest standards of truth, integrity, and trust.
In noticing Obama’s predilection for hiring McKinsey types, the Economist pointed out how it signaled a distinct change from the Bush administration’s apparent love of former Goldman Sachs employees. For their part, the Clintons had been favorable to Rhodes scholars.
What you get from HBS is a wonderful network of people who were there with you and a set of tools that you can then bamboozle people with for the rest of you life. It’s a habit of thought — conventional responses to conventional situations.
This complaint leads to an important question, which is whether or not Wall Street firms have any business hiring six-month consultants to tell them how to set strategy. This is arguably the reason Goldman Sachs has for so long set itself apart from the competition. The company has people who make decisions. They make calls that would have taken UBS two years to consider.
By 2009 McKinsey was attracting a very different crowd, according to some. “It felt deadening. Of course, it might not have felt that way to all those MBAs, engrossed in their charts and their teams. They were people who went to good schools but who weren’t very intellectual. They were very successful grinds.
“I think the fundamental problem at McKinsey is that they have no real product. What do you do when there’s nothing there? You commoditize things that other people consider part of life, like personality and intelligence. You turn them into ‘units.’ They objectify basic human ideas and force them into ‘workflows’ and ‘dichotomies’ and ‘frameworks.’ These are not intellectuals. They are institutional people. They are people who spent a lot of time in the library memorizing things. They may talk of their new ‘framework,’ but it’s not like it’s an electric car or something.”
In it, Barton espoused a move from what he called “quarterly capitalism” to “long-term capitalism.”
“In my view, the most striking difference between East and West is the time frame leaders consider when making major decisions. In my discussion with the South Korean president, he asked us to help come up with a 60-year view of his country’s future.”
Working at McKinsey provides a cram course in business experience. It was a compressed opportunity to see a lot of companies, industries, and problems in a short period of time. You got your BS, your MBA, and your MCK.
BCG asked me how come their alumni aren’t as happy as McKinsey’s. I told them it was simple, that when a guy left BCG they shat all over him and consider him a failure. When people leave McKinsey, they are counseled out and are proud of their time there. There is no McKinsey boneyard, in other words; you’re still McKinsey, even after you’ve left.
One alumnus, now head of a major financial institution, explained that while he will still use McKinsey for highly analytic and focused project, he has no time whatsoever for the typical McKinsey schmooze fest. “Of people who have worked at McKinsey who are now clients,” he said, “there are two types. There are people like me who understand the bullshit side of it and who aren’t too smart. We don’t get caught up in the intellectual masturbation. And then there are the more cerebral people who hire them because they want other McKinsey people around. They get into these companies and think, ‘Oh my God! Everyone here is a dope. I want to start using the whiteboard with someone, to talk about the effect of the Internet on x, y, or z.’ Those are the guys who never left McKinsey. They carry it around with them, and their organization hate them for it.” The best clients of McKinsey, in other words, are junkies who need their fix.
The wiretaps also revealed Rajaratnam telling Kumar that he thought Gupta had tired of being a “poor” consultant and desired to join the “billionaire circle.”
But again, it’s much larger than Gupta himself. The revelation that someone who had led the firm for ten years could have so lost sight of the value systems that Marvin had built into the place made me aware of both how far the US had moved in a money-is-all-that’s-important direction as well as how far the financial community had lost sight of why it was set up in the first place, which was to help actual companies doing actual things.
Marvin Bower said they were greedy fucks at the end.
My father once told me that the mistake we all make is thinking teenagers are problematic. It’s really people in their late fifties and early sixties are the problematic ones. That’s where real frustration arises.
The winnowing can be brutal on young people who were the smartest in their class and then suddenly are shown the door by McKinsey after two years. But if you make it onto the partner track, it’s a contended little club of survivors. In a sense, McKinsey has solved the same riddle as the army has in convincing people to go to war and get shot at — for the feeling of serving something greater than oneself. None of its rivals have come even close to creating a system like this.
McKinsey will tell you that there really is no secret to its success — it is based on a relentless focus on recruiting and training, rigorous peer review, hard work, and emphasizing one’s contributions to the firm rather than taking credit for client billings. The firm’s recruiting process has been compared to that for astronauts.
That said, through its objectivist, skeptical, fact-based, integrative, and analytical approach to solving its clients’ problems, McKinsey has certainly made the world a more efficient, rational, and objective place than it might otherwise have been. In a world full of talkers and blowhards, the firm is supremely capable of bringing the focus back to the data and research, and usually to efficient effect.
The firm has also served as a powerful talisman for the terrified executive, a corporate shrink for the insecure CEO, and a rubber stamp for the domineering boss who wants a ram a decision down his company throat. In other words, it plays the role its clients have scripted. That’s why the focus on personal relationships has worked for so long. What executives wouldn’t want a high-quality rapid-response team of well-dressed worker ants to satisfy his every need?
In their worst moments, McKinsey consultants congratulate each other on being what more than a few have referred to as the greatest collection of talent the world has ever seen. And in a way, they may be right — it’s difficult to think of a comparable group of such smart, driven people working for the same organization anywhere in the world. But you can also look at it as McKinsey claiming to have won a game that no one else is playing. Most organizations — be they large multinational banks or entities like Facebook — don’t actually need everyone on the payroll to be a smart overachiever.
Charlie Munger said that he had never met a corporate leader who’d actually read a consulting report.
Pin executives down, and they will surely be able to tell you about the most important decisions of their career. In a large organization, though — the kind for which McKinsey works — the value of most decisions doesn’t necessarily reside in the actual choice made; it resides in the very fact that the choice is being made in the first place. Leadership is about getting people to follow you, but before they can do that you need to choose the direction in which you’re heading. There will always be demand for such a service, and that’s precisely what McKinsey provides.
McKinsey’s greatest challenge going forward — true test of its genius — is no longer finding inspired solutions to its clients’ problems. The test is managing the complications that have resulted from its own stupendous success. One of the firm’s recently stated goals is helping to “solve the world’s great problems.” But if it wants to achieve this, it’s going to have to continue solving its own.