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McKinsey looks set to stay top of the heap in management consulting
IT IS one of the engines of global capitalism. Not only does McKinsey provide
advice to most of the world s leading companies (and governments). It also
pioneered the idea that business is a profession rather than a mere trade and a
profession that thrives on raw brainpower more than specialist industry
knowledge or plain old common sense.
Yet McKinsey s name has suffered a succession of blows in the past 15 years.
The Firm, as it calls itself, was deeply involved in the Enron debacle: the
energy company s boss, Jeff Skilling, was a McKinsey veteran who praised the
consultancy for doing God s work , and the McKinsey Quarterly published
articles on Enron as enthusiastically as Hello! runs pieces about the Beckhams.
In 2010 Anil Kumar, a McKinsey consultant, admitted passing inside information
to Raj Rajaratnam of Galleon, a hedge fund. Last year Rajat Gupta, a former
McKinsey managing partner, was also convicted of passing inside information to
Mr Rajaratnam.
Life is getting tougher for professional-services firms. Midsized consultancies
are already suffering: Monitor Group went bankrupt last year Deloitte later
bought it for $120m and Booz & Co and Roland Berger are agonising about their
futures. If the legal profession is anything to go by, worse is to come: Dewey
& LeBoeuf collapsed last year after borrowing heavily in a dash for growth, and
other elite law firms are struggling to win business.
So, are McKinsey s best days behind it? Two new publications offer some
interesting answers. The Firm , by Duff McDonald, is a generally admiring book
that nevertheless asks hard questions about the organisation s future.
Consulting on the Cusp of Disruption , by Clayton Christensen and two
colleagues, is a penetrating article in the October Harvard Business Review,
arguing that the comfortable world of the strategy consultancies is about to be
turned upside down.
McKinsey s success depends above all on an unimpeachable reputation for
integrity. It cannot continue to serve most of the world s leading companies
(including working simultaneously for competitors) if its consultants are
willing to spill secrets. Mr McDonald argues that the firm s size makes it
impossible to avoid repeats of the Kumar problem. It is now a giant factory
with 1,200 consultants rather than the cosy club of old. The firm has to keep
growing, not least to provide its partners with the $1.5m or so a year that
they earn. But every time it grows it puts its most important asset at risk.
McKinsey s success also depends on its ability to remain at the cutting edge of
business. But in recent years it has seemed to be on the wrong cutting edge. Mr
McDonald points out that whereas McKinsey has led the financialisation of
basic industries such as oil and gas, it has had little if any role in shaping
the giants of the internet economy, such as Apple and Google. The new lords of
business are engineers in hoodies, not MBAs in pinstripes.
Mr Christensen focuses on a bigger subject: how the forces that have disrupted
so many other businesses, from steel to publishing, are disrupting consulting.
The big three strategy consultants the other two are the Boston Consulting
Group (BCG) and Bain are masters of opacity. But Mr Christensen argues that
light is being let in on the magic. Companies are getting better at measuring
results and demanding value for money. They also have access to more business
expertise than ever before: the big three have more than 50,000 living alumni.
The big three have been masters at bundling lots of different services into a
single, high-priced package. But clients no longer want to pay fat fees for a
bit of strategic advice from a senior partner and a lot of humdrum work from
neophytes. Mr Christensen says low-priced competitors are beginning to
dismember the consultants business. Eden McCallum cuts costs by deploying
freelancers, most of whom once worked for the big three. BeyondCore replaces
overpriced junior analysts with Big Data, crunching vast amounts of information
to identify trends.
McKinsey clearly faces a more difficult market than it is used to. But it has
overcome serious challenges before such as in the 1980s, when it lost the
intellectual high ground to BCG and then Bain before regaining it. The firm is
fixing some of the problems from the Gupta era. It has elected two successive
managing directors, Ian Davis and Dominic Barton, who have worked hard to
restore its professional ethos. Mr Barton urges companies to embrace long-term
capitalism rather than quarterly capitalism and corporate responsibility
rather than financial engineering: the very opposite of the Enron-era McKinsey
s gospel.
Old boys (and girls) everywhere
McKinsey also has two huge assets: talent and knowledge. It retains an
unrivalled ability to recruit hundreds of clever young people and turn them
into an army of problem-solving worker ants. It also has an enviable network of
alumni, many of whom are happy to hire their old employer: in 2011 more than
150 ex-McKinseyites were running companies with more than $1 billion in annual
sales. The firm has also invested heavily in knowledge for decades: perhaps no
other organisation has as much interesting data on global capitalism.
Though lesser firms may be facing disruption, McKinsey dispenses a special sort
of consultorial fairy-dust that is hard to replicate, and as much in demand as
ever. The global ruling class is seized with a toxic combination of
status-obsession and status-insecurity. Decision-makers also fear being swept
away by one of Mr Christensen s disruptive forces. They seek constant
reassurance and reaffirmation from prestigious institutions. McKinsey knows
better than almost anyone how to exploit this peculiar mindset. That will
guarantee the Firm a solid future, even if no one can prove that its advice
actually does any good.