September 25, 2013 5:30 pm
By Andrew Hill
McKinsey has been compared to the Jesuits, the US Marines, the Roman army and, in this book, to a “corporate Mandarin elite”. Yet the most telling parallel drawn by Duff McDonald is with Parisian courtesan Carolina Otero, who charged “outrageous fees” to customers including European royalty. “It was widely argued that everybody who had the means had to have her at least once,” McDonald writes. “Once you’d paid a million francs for a roll in the hay, you weren’t about to admit it wasn’t worth the price paid.”
At a stroke, McDonald sums up the attraction of McKinsey to the world’s largest companies, the mystique surrounding its methods, the envy it inspires in competitors and the anger it sometimes incites among those who resent the influence of “the Firm” and its high-placed alumni.
McDonald asks a big question: has McKinsey added value, not only to corporate America but to society, or is it the “single greatest legitimiser of mass lay-offs . . . in modern history”?
In truth, he does not provide a definitive answer. Getting to the bottom of McKinsey is hard. Most alumni and staff do not wish to talk on the record and, when they do so on background, they are usually positive. Detailed information about McKinsey’s fees, profits and salaries is difficult to obtain. Clients generally stay loyal to the firm, even after scandals. But it is a pity McDonald’s interviews have not yielded more insight, particularly about the trauma suffered after partner Anil Kumar and former managing director Rajat Gupta were hit with insider trading charges in 2010-11.
The result is a book that fits one McKinsey colleague’s description of former managing director Ron Daniel – “so smooth he could skate on your face and not leave a mark”. Still, McDonald has produced a very readable account of what happened to the group of “management engineers” brought together in the 1920s. At its heart is Marvin Bower, who, after the founder’s premature death, emerged as McKinsey’s guiding spirit. He insisted the firm should deal mainly with senior executives and shun routine work, as well as warning about the risk that greed would undermine the values he promoted.
McKinsey developed a model based on “the transformational relationship”, code for an indefinite long-term assignment. “A huge part of effort is spent figuring out how to turn a middling client into a $10m-per-annum cash cow,” writes McDonald. But as Clay Christensen and co-authors point out in the latest Harvard Business Review, faced with disruption from smaller non-traditional rivals and client familiarity, “big consulting is questioning its sacred cows”. McKinsey and others have started packaging the tools they used to entrust to their consultants and selling them as direct “solutions”, to which clients can subscribe. McDonald does not write much about this product-based future, though he does question how McKinsey will cope with the challenge of being a large, ageing company like the US blue-chips it advised in the 1960s and 1970s.
As for his big question, The Firm’s most wounding conclusion is that the consultancy is essentially no more than a self-perpetuating fee machine. It may have made the world “a more efficient, rational, and objective place” and aided companies’ understanding of evolving management ideas, but, despite extraordinary talent, hard work and Bower-inspired meticulousness, “ask [it] about the greatest piece of advice the firm ever gave . . . and the answer will be wholly unsatisfying”.
McDonald exposes the rejoinder that it is not consultants’ job to take the big strategic steps for their customers, as an “age-old dodge”, exercised if things go wrong. In the words of Gupta, McKinsey’s fallen star, following the collapse of its customer Enron, the firm only advises “clients on their strategy. They are responsible for what action they take”.
By Andrew Hill
McKinsey has been compared to the Jesuits, the US Marines, the Roman army and, in this book, to a “corporate Mandarin elite”. Yet the most telling parallel drawn by Duff McDonald is with Parisian courtesan Carolina Otero, who charged “outrageous fees” to customers including European royalty. “It was widely argued that everybody who had the means had to have her at least once,” McDonald writes. “Once you’d paid a million francs for a roll in the hay, you weren’t about to admit it wasn’t worth the price paid.”
At a stroke, McDonald sums up the attraction of McKinsey to the world’s largest companies, the mystique surrounding its methods, the envy it inspires in competitors and the anger it sometimes incites among those who resent the influence of “the Firm” and its high-placed alumni.
McDonald asks a big question: has McKinsey added value, not only to corporate America but to society, or is it the “single greatest legitimiser of mass lay-offs . . . in modern history”?
In truth, he does not provide a definitive answer. Getting to the bottom of McKinsey is hard. Most alumni and staff do not wish to talk on the record and, when they do so on background, they are usually positive. Detailed information about McKinsey’s fees, profits and salaries is difficult to obtain. Clients generally stay loyal to the firm, even after scandals. But it is a pity McDonald’s interviews have not yielded more insight, particularly about the trauma suffered after partner Anil Kumar and former managing director Rajat Gupta were hit with insider trading charges in 2010-11.
The result is a book that fits one McKinsey colleague’s description of former managing director Ron Daniel – “so smooth he could skate on your face and not leave a mark”. Still, McDonald has produced a very readable account of what happened to the group of “management engineers” brought together in the 1920s. At its heart is Marvin Bower, who, after the founder’s premature death, emerged as McKinsey’s guiding spirit. He insisted the firm should deal mainly with senior executives and shun routine work, as well as warning about the risk that greed would undermine the values he promoted.
McKinsey developed a model based on “the transformational relationship”, code for an indefinite long-term assignment. “A huge part of effort is spent figuring out how to turn a middling client into a $10m-per-annum cash cow,” writes McDonald. But as Clay Christensen and co-authors point out in the latest Harvard Business Review, faced with disruption from smaller non-traditional rivals and client familiarity, “big consulting is questioning its sacred cows”. McKinsey and others have started packaging the tools they used to entrust to their consultants and selling them as direct “solutions”, to which clients can subscribe. McDonald does not write much about this product-based future, though he does question how McKinsey will cope with the challenge of being a large, ageing company like the US blue-chips it advised in the 1960s and 1970s.
As for his big question, The Firm’s most wounding conclusion is that the consultancy is essentially no more than a self-perpetuating fee machine. It may have made the world “a more efficient, rational, and objective place” and aided companies’ understanding of evolving management ideas, but, despite extraordinary talent, hard work and Bower-inspired meticulousness, “ask [it] about the greatest piece of advice the firm ever gave . . . and the answer will be wholly unsatisfying”.
McDonald exposes the rejoinder that it is not consultants’ job to take the big strategic steps for their customers, as an “age-old dodge”, exercised if things go wrong. In the words of Gupta, McKinsey’s fallen star, following the collapse of its customer Enron, the firm only advises “clients on their strategy. They are responsible for what action they take”.
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