How McKinsey Became One Of The Most Powerful Companies In The World

From boardrooms to the White House and beyond McKinsey's influence in business is virtually unparalleled. It is quite possibly the most influential private institution on the planet. An organization has a problem that they cannot solve with their internal resources. That's the most classic way that McKinsey is brought in. I have had a lot of exposure to firms with a high opinion of themselves. McKinsey takes the cake. Its alumni control some of the largest and most powerful companies in the world. And have also been involved in some of corporate America's Most Sensational scandals. Now is the company having a moment of reckoning? One of the world's most storied and respected management consulting firms is finding itself in the subject of critical media scrutiny. Or will it somehow continue to fly below the radar? McKinsey was founded in 1926 by James O McKinsey. He was a professor at the University of Chicago and an expert in management accounting. The firm began advising companies locally and slowly opening up offices in major urban hubs around the country. By the 1950s the firm was assisting the White House with staffing organization which according to the company would lead to the creation of the chief of staff role. In 1970 McKinsey helped create the barcode. Yes. That barcode with the uniform grocery product Code Council. It's all about solving the most pressing and complicated business problems. First of all you know people who go to work for McKinsey tend to be elite individuals in terms of their intellectual ability business acumen drive ability to think creatively. Plenty of people have said you know going to McKinsey is like getting the PHD on top of your MBA but in a much more polite way than an academic way. The company touts more than 30 Rhodes Scholars on its staff and at least six Olympians. The way I sketch it out in the book there are three main ingredients. Fact based hypothesis driven and structured it's not so much what the specific structure is but the fact that there is a structure and it's logical and coherent. And it drives the problem solving process in terms of what is the problem? How do we scope it out break it into its constituent elements go about getting the data? All the way down to how do we then present it to the client in a way that will enable them to implement the changes that McKinsey might be recommending. The experience the tools and the way to think to try to bring this information. These questions these data that we were gathering to a level shots that you can draw a conclusion. And I think at McKinsey what you learn is to be able to move really up and down. Up and down the hierarchy up and down the problems up and down the levels of thinking. And I think this is extremely different when you compete with the people who didn't have the chance to go through this experience. Mckinsey is not the only firm offering consulting services like these. It has serious competition like Bain and Company and The Boston Consulting Group. But out of the Big Three as they're called McKinsey is the leader when it comes to management consulting revenues according to ALM intelligence. They're still quite prominent from a revenue standpoint they're also on that temptation standpoint but when you really look at consulting today they're not as prominent as the big four accounting firms. Deloitte TWC and Eli and KPMG they're actually the largest consulting firms but of course it's also about who you know. Certainly when I was there McKinsey was famous for having decades long relationships with any number of Fortune 500 companies. They were on tap for the senior executives. You always think with McKinsey about strategy but you work with people which later I used to that Solar Impulse Solar Impulse was a project which was considered impossible by the. But the aviation industry we wanted to be an airplane which was bigger than a 747 in terms of wingspan but the weight of a car and I got out of my time at McKinsey essentially working with teams the way to were to organize these people and to make them understand where they would go all they could go there and deep look through right empowerment. There's no point not to hire McKinsey if you can afford it because it's a SWAT team of analysts that is at your beck and call. They traffic and influence industry intelligence helping executives make a decision I've already made by backfilling a report. It's basically a firm that will come into the office and say What do you want us to do. The nature of the role does not necessarily make the consultants at McKinsey the most popular people. Their job is to help organizations become as efficient and effective as possible and to complete their own missions. It is simply a fact of life it's not necessarily pleasant and that's why sometimes when consultants whether it's McKinsey or anybody else comes in they can be viewed not particularly favorably by the people in the organization themselves. Certainly it was part of my experience. In many ways it's management bringing them in to do it so they don't have to. The people who work there they do very well. They don't get. They don't make hedge fund money but they're making more than most of the people you know. Nobody brings McKinsey in because they've got the world in their hands. And the firm gets paid handsomely for its services. Generally the fee rates are closely guarded and they are all over the map and at the same time they can be quite well known. The government naturally publishes the fee rates for McKinsey and others. You know the inside joke in the industry is you hire McKinsey and it's two hundred fifty thousand dollars a week for a team. However consulting pay structures have evolved. Alternative fee structures. Results based fees for taking a stake in the client an equity stake. Something like that. It's very attractive for clients when they hear that they pay a smaller upfront fee. It's also a way to get more bang out of the project than just the straight time and materials. The forces that McKinsey stands for which are efficiency and rationality. It's hard to have a problem with those on their face you know who votes for inefficiency but I think that we have to decide what our values are what do we want as a people and is efficiency our top priority? Perhaps even more infamous than the company's work itself is its alumni network. Many years after I left McKinsey I was still talking about we and not about they people that have worked at McKinsey run the gamut of corporate leadership. Big names include the likes of Sundar Pichai the CEO of Google James Gorman CEO of Morgan Stanley Jørgen Vig Knudstorp chairman and former CEO of The Lego Group and Sheryl Sandberg the chief operating officer of Facebook. Yeah McKinsey is everywhere and they have built a machine that sort of the alumni interaction with the with the current firm sort of feeds itself in a constant virtuous circle of fees and engagements. It's kind of stunning to behold. And the influence extends into politics. Republican Senators Tom Cotton and Ben Sasse have both either worked for or advised McKinsey briefly. Chelsea Clinton also did a stint with the firm. As did Susan Rice Obama's national security adviser. And Democratic mayor of South Bend Indiana Pete Buttigieg who's running for president. McKinsey is a private company so it doesn't regularly disclose sales or profits. It's even impossible to find a complete list of their clients. Although McKinsey told CNBC that it serves more than 90 of the top 100 companies worldwide. Duff McDonald lists AT&T General Motors and IBM just to name a few. He also reports praise from Jamie Dimon CEO of JP Morgan Chase – all in his book the firm. This is a firm that has a historical policy of not disclosing anything about what they do to anybody. One of the most difficult things to find is satisfied McKinsey clients because what McKinsey does that it sells credit for its ideas. If you're the CEO of a company and hire them you don't want them running around saying we told them to make that acquisition that was us. That was us. They take no credit and they take no blame. That is also a brilliant part of their business model. For years they claim they were only in the advice business and what their clients did with their advice was up to them. I think that's a little less defensible than they'd like you to think. And the company's alumni have had ties to some major recent corporate scandals. Good evening. The stunning collapse of Enron. The main question Did Enron illegally conceal hundreds of millions of dollars in debt that it racked up from outside investments making it appear more profitable than it actually was. Jeff Skilling was briefly the CEO of Enron during the company's fall from grace spent 12 years in prison. He worked at McKinsey for more than a decade. Reports at the time confirmed Enron was McKinsey's client for years. The Wall Street Journal called the firm instrumental in the energy companies transformation. A major insider trading case getting under way today and Bertha Coombs is live in New York City as Rajat Gupta goes on trial in a separate scandal. Rajat Gupta who was convicted of insider trading in 2012 was a managing director at McKinsey from 1994 to 2003. More recently pharmaceutical company Valent was one of the hottest stocks from 2012 to 2015 before it lost more than 90 percent of its value in an accounting and price gouging scandal. What you're seeing in this stock is mass abandonment of this story. Now it already was done in this was a $240 dollar stock six months ago. Its CEO Michael Pearson was a McKinsey consultant for more than 20 years. Mr. Pearson began begin with their testimony. Valeant was too aggressive and I as its leader was also too aggressive. As a company McKinsey was not legally implicated in any of these scandals. Mckinsey's global footprint is expanding. It tells CNBC it's in 133 cities across 66 countries around the world with about 17000 consultants. While 75 percent of the firm's business was in what they call core management consulting 15 years ago, today it's only about a quarter of their business as McKinsey is expanding into technology data analytics and visualization artificial intelligence and industrial design. You bring into McKinsey because they are change agents. Think about it this way. Consultants are the least been one step ahead of their clients. That's how they sold themselves more and more companies are saying well you don't really need consultants to help us in the big picture. We need them in just very tactical little areas and those kinds of projects are not the kind that can sustain organizations the size of McKinsey. You got to feed the beast. And that's that's why they got to change their business. They are everywhere in D.C. and abroad also you know McKinsey is very influential in Western Europe. They have been for half a century. Whether that's Englander in Germany or elsewhere. But also some recent New York Times reporting has shown that they are very involved with China. A lot of state owned enterprises Saudi Arabia. South Africa is a great example. There the company was ensnared in a government corruption scandal. McKinsey repaid about 74 million dollars in fees and while not admitting legal wrongdoing has apologized for its involvement in global managing partner Kevin Sneader told CNBC Africa. I think we've learned many lessons from this saga not the least of which is when you make a mistake it's best to say sorry quickly and clearly and then take steps to ensure you don't repeat the errors. And so the second thing we're doing is really looking hard at what went wrong. And then on the back of that we've already started to make a number of changes to how we serve clients. The oversight the risk policies the kind of clients we serve and more importantly the partners that we choose to do client service with. We really know much more digging into the backgrounds of those who are not just going to accept at face value what people tell us. You know McKinsey is an institution that is built on trust. Everybody is supposed to trust it. Its clients are supposed to trust securities regulators are supposed to trust. The public is supposed to trust it. And increasingly we've seen different instances where that trust may appear to have been misplaced. This is a firm that could be a seedbed of all manner of potential conflicts of interest. We're supposed to trust that they manage them properly. It may be that they're so big now that that is almost an impossible task. The New York Times reported in early 2019 that McKinsey runs a multi-billion dollar hedge fund that may have a stake in the outcome of some of the corporate restructurings the company consults on including their work trying to turnaround the public finances of Puerto Rico. This has opened up questions about what needs to be disclosed by the company in bankruptcy court. McKinsey called the New York Times report quote fundamentally misleading and said the assertion of a conflict of interest between our consulting activity and MIO the company's investment wing is wrong. Specifically on Puerto Rico the company insists there was no information sharing between its consultants and its fund. And it pointed to an independent report commissioned by Puerto Rico's oversight board to backup its position. Overall I think they have maintained their quality and for the most part and you can always point to the failings of an organization you know but they mostly maintain their integrity and they've maintained their relationships long term with major industrial companies and financial companies while trying as much as possible to move into space spaces filled by new industries. Will McKinsey's secretive behind the scenes business model persist in this more transparent world of the digital economy. Only time will tell. One of the first articles that covered us when I joined the firm was the McKinsey mystique. I think there is a period of time when mystique was a good thing. Mystique is not a good thing anymore. People don't like secrecy and we have to change with that.

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Id: BBmmMj_maII

Length: 16min 26sec (986 seconds)

Published: Thu Jun 06 2019

Reddit Comments

[u/Great_White_Bear]

It's always funny when you have two multinational clients trying to break into the same market, focusing on the same niche, both with similar products, and wanting to maximize their earnings using the same strategic consulting team overseeing the operations.

[u/The1UKnow]

KPMG told me-

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who am I kidding

[u/epistemole]

I like how they showed Sheryl Sandberg as an example of a powerful McKinsey alumnus. She was there only a single year, as I recall. Not a dig at Sheryl or McKinsey, just found it funny.

[u/krish5115]

PwC told me they are

[u/jacobsweatbandz]

Accenture told me they were

[u/swiglord_]

Andre Borschberg or Robert De Niro - the McKinsey Difference

[u/R3NMN]

I should've taken McKinsey instead of IBM Strategy?

[u/JohnDoe_John]

Any text? Thanks.

[u/[deleted]]

Wait, Mr Coopers says otherwise?