McKinsey & Company
From Open Encyclopedia
| no logo | |
| Type | Partnership |
|---|---|
| Founded | 1926 |
| Location | 83 offices in 45 countries |
| Key people | Ian Davis, Managing Director |
| Industry | Management consulting |
| Products | Management consulting services |
| Revenue | US$ 3.5 billion (est. 2002) |
| Operating Income | {{{operating_income}}} |
| Net Income | {{{net_income}}} |
| Employees | about 6,000 consultants |
| Website | www.mckinsey.com |
| {{{footnotes}}} | |
McKinsey & Company is a privately owned management consulting firm that focuses on solving issues of concern to senior management in large corporations and organizations.
Contents |
History
Known both internally and externally as simply "The Firm" [1], McKinsey was founded in Chicago during 1926 by James O. ("Mac") McKinsey. McKinsey was a professor at the University of Chicago who pioneered budgeting as a management tool. Marshall Field's became a client in 1935, and soon convinced James McKinsey to leave the Firm and become its CEO; however, he died unexpectedly in 1937.
Marvin Bower, who joined the Firm in 1933 and succeeded James McKinsey when he left, oversaw the Firm's rise to global prominence. While he always gave James McKinsey credit for the Firm's success, Bower established many of its guiding principles. Inspired by his experience at the law firm of Jones Day, he believed that management consulting should subscribe to the highest standards, emphasizing professionalism over any other consideration.
For many years, McKinsey was the unchallenged leader in consulting, and many of its alumni went on to head leading companies, often their former clients, generating further business for the Firm. It now maintains offices on all continents and in most major cities; in the last few years, the majority of its work has derived from non-U.S. clients.
McKinsey's competitors include The Boston Consulting Group, Bain & Co., A.T. Kearney, and Booz Allen Hamilton. McKinsey's practice is varied enough that they even compete with Accenture and IBM for technology strategy engagements.
McKinsey claims its growth to date has been based less on an explicit growth strategy than on meeting apparent client needs. It says that it will not take on client work unless doing so will create value for the client.
Perhaps as importantly, McKinsey has always placed great value on its mystique, creating an image of behind-the-scenes competence and unstoppable success. For example, its consultants were encouraged to stay at the best hotel in town, and the Firm has historically held expensive "retreats" for them in high-profile luxury resorts.
However, although it does not reveal its financial results, McKinsey is believed to have encountered significant difficulties in recent years, not least because it is thought to have been hard hit by the dotcom bust in 2000. Although the Firm was an enthusiastic champion of the so-called "New Economy," The Economist and others suggested it had been a relative latecomer to the technology boom. It established its "dotcom incubator" called "@McKinsey," which essentially offered consulting services to tech firms in exchange for a significant equity stake, in 1999, just as the market was peaking.
The Firm subsequently slashed consultants' perks and quietly introduced a hiring freeze, which has now ended. Unusually, Managing Director Rajat Gupta's bid for re-election to head the partnership met with challenges from other partners, an unprecedented sign of disagreement about McKinsey's future.
In 2003, McKinsey made headlines when it hired Chelsea Clinton, daughter of former U.S. President Bill Clinton and Senator Hillary Rodham Clinton, who became a consultant for a reported six-figure salary. Although starting salaries in this range are not unprecedented, it is rare for a new hire with her qualifications (an MPhil in International Relations from the University of Oxford) to become an associate directly; this typically happens only with M.B.A., M.D., J.D., or Ph.D. holders.
Although former McKinsey consultants overwhelmingly speak of their experience at McKinsey in favorable terms, many worry about the firm's capacity to maintain quality and sustain growth. Some fear that the Firm's all-important reputation may have been damaged in recent years, while competitors have gained in stature. Many reputable financial-services companies have added consulting branches over the past two decades, driving down profit margins, and many other large companies, recognizing the importance of consulting, have created their own in-house consulting divisions, drawing business that might otherwise have gone to McKinsey.
Organization
McKinsey is formally organized as a corporation, but functions as a partnership in all important respects. (It dropped the "Inc." from its company name in 2001.) Its managing director is elected for a limited term of four years by the Firm's senior shareholders, titled directors. Each managing director can only serve for three terms. Several committees develop policies and make critical decisions. Geographically based offices act as the main business unit, but the Firm maintains cross-geographical practices around industry sectors and management areas. Associates are invited to join the partnership through an evaluation and election process, and shareholders who reach a certain age are obliged to sell back their shares according to a set formula. McKinsey consultants are also subjected to the practice of "up or out," in which they must advance in their consulting careers within a time frame, or else are asked to leave the Firm.
Today McKinsey has over 7,500 consultants in 82 offices across 44 countries. They help solve strategic, organizational, operational and technological problems, for some of the world's largest organizations. Clients include three of the world's five largest companies, two-thirds of the Fortune 1000, governments and other non-profit institutions. McKinsey also performs pro bono engagements for a number of charitable organizations and government agencies worldwide.
A controversial aspect of McKinsey's practice is that it is non-exclusive: Different teams of consultants might work for direct competitors in an industry. This works to the Firm's advantage, as it does not require it to rule out working for potential clients, as might be the case for other financial-services firms; furthermore, knowing that a competitor has hired McKinsey has historically been a strong impetus for companies to seek McKinsey's assistance themselves. The policy also means McKinsey can keep its list of clients confidential. However, because of this there is great emphasis placed on client confidentiality within the Firm, and consultants are forbidden to discuss details of their work with members of other teams.
Traditionally, McKinsey has only revealed involvement with a client either as a result of legal action, or when the company itself has publicly stated it, which the Firm discourages.
Recruiting
Marvin Bower broke with industry practice in his time by focusing hiring efforts on recent graduates from the best business schools, rather than among experienced managers. The premise for this was that analytical rigor and fresh insights were of greater value to clients than conventional wisdom. McKinsey has known to make rare exceptions to this policy by hiring senior staff from industry (John Sawhill being a noted example), and in later years it claims to have diversified its recruiting base by soliciting candidates from graduate programs within law, medicine, engineering, science, and the liberal arts.
McKinsey is one of the most sought-after destinations for graduates of top MBA programs, having been rated #1 in the Universum survey of most desirable employers for the past six years. The Firm is the largest single recruiter at the world's top business schools, including the Harvard Business School, the University of Chicago Graduate School of Business, the MIT Sloan School of Management, the Stanford Graduate School of Business, the Wharton School of Business, the Kellogg School of Management, the Columbia Business School, and INSEAD. It is also the largest private recruiter at Harvard Law School and employs more Rhodes Scholars than any organization outside of the White House.
McKinsey also recruits very selectively among undergraduates, hiring as "Business Analysts" recent graduates from top universities to work as consultants alongside its associates for no more than two years. The BA program is one of the most competitive in industry and is coveted by many business-oriented undergraduates. Many business analysts are sponsored by McKinsey to attend graduate schools of business after their initial two years at McKinsey and rejoin the firm afterwards.
Alumni
In spite of the fact that many former McKinsey consultants are asked to resign from the firm, McKinsey maintains and sponsors an active alumni network. By some accounts, more than 80 Fortune 500 CEOs are former McKinsey consultants. Current and former McKinsey consultants include Lou Gerstner, Tom Peters, Chelsea Clinton, Bobby Jindal, Jeff Skilling, Jim Manzi, Rajat Gupta, Jonathan I. Schwartz and William Hague.
Publishing and public relations
A print and online publication, The McKinsey Quarterly [2] (published six times a year) offers journal-length articles on strategy, organization, marketing, and other topics of interest to senior executives. The Firm's Business Technology Office also publishes McKinsey on IT, a quarterly publication aimed at CIOs and other top executives. The corporate finance practice publishes McKinsey on Finance, aimed at CFOs.
Criticism
Much criticism against McKinsey can be applied to management consulting as a whole. The Firm itself will not discuss specific client situations and maintains a carefully crafted and low-profile external image, which also protects it from public scrutiny of the results of its involvement, making an assessment of its client base, its success rate, and its profitability difficult. This secrecy also helps conceal McKinsey's prices, which often far exceed $10,000 (U.S.) per day for a consulting team.
Client confidentiality is maintained even among alumni of the Firm, and as a result, journalists and writers have had difficulty developing fully informed accounts of mistakes McKinsey consultants may have made, such as with Enron, thought to have been one of the Firm's biggest clients.
Much of the distrust toward McKinsey can be categorized as:
- Misguided or unimaginative analysis, such as its alleged recommendation in 1983 to AT&T that cellular phones would be a niche market;
- Lack of coordination among multiple engagement teams working with one client;
- Groupthink, as its consultants strive under time pressure to converge on a unified set of findings and recommendations
- Hubris or arrogance toward executives, in particular underestimating the difficulty of implementing recommendations
- Emphasis on "current thinking" that may amount to little more than forcing the latest business theories on clients without taking a longer-term view
- Emphasis on shareholder value, often at the price of investment and long-term strategy. For example, this may have doomed the British railway company Railtrack, which collapsed after a series of accidents, allegedly after following McKinsey advice to reduce spending on infrastructure and return cash to shareholders instead
- Concern that it aims to become an expensive permanent presence with clients, rather than focusing on solving a clear set of problems, thereby functioning as a substitute for proper leadership and organization. This is an increasing concern in the public sector, where McKinsey has become involved with agencies such as the British National Health Service
Among other books and articles, The Witch Doctors, written by The Economist journalists John Micklethwait and Adrian Woolridge, presents a series of blunders and disasters alleged to have been McKinsey's consultants' fault. Similarly, Dangerous Company: Management Consultants and the Businesses They Save and Ruin by James O'Shea and Charles Madigan critically examines McKinsey's work within the context of the consulting industry.
British Prime Minister Tony Blair faced criticism in the Financial Times for hiring McKinsey to consult on the restructuring of the Cabinet Office. A top civil servant described McKinsey as "people who come in and use PowerPoint to state the bleeding obvious."
External links
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