McKinsey suffers from collective self-delusion
economist.com
economist.com
The legwork (mostly making powerpoints, from what I have heard) is done by bright, recent graduates from top undergrad programs. No doubt they are all intelligent and accomplished, but what value does a 22-year-old Harvard economics grad bring to (e.g.) a pharmaceutical pricing problem? Certainly not relevant experience. Probably not even "business judgment".
Teams are led by MBAs and some PhDs, most of whom will not have industry-relevant experience (though some will on certain engagements). I don't have an MBA, but two of my college friends described one top program as "a summer camp where you learn about Excel functions". This makes their advice desirable to large firms??
The breadth of knowledge which would be required of any single consulting firm to advise on the basis of direct experience across the range of industries in which consultants operate is staggering. They don't have it.
If what management wants is the consultant's imprimatur on an idea they want to implement anyway, why not either just commit to it without McK's 'approval' and save a few million dollars OR try to get an outside blessing for the idea more cheaply? I get that McK has a "pedigree" and this may be part of what the firm wants, but that's an extraordinarily expensive way to solve the 'problem' of not being willing to take responsibility for your own idea.
I bet on a stock and it went up, I sold it made money. Just because betting on a stock made me money does not mean that my reasoning was correct. Furthermore, there is no way to really know why the stock went up. Even if I repeat this across many many trials, there is no amount of verification which will prove me right.
McKinsey is a real world arbitrage on this but dressed up in expensive ivy league educations, $500/hr consulting fees and fancy gobbledegook which awes management.
Munger, FWIW, says they never ever hire management consulting firms.
So what the consulting company then does is trying to find out what the stakeholders really want and write it in their recommendation.
I dont really know if I shd believe that, but at least it also explains why a consulting firm can recommend one year one thing, and next year the opposite for the same company (interest of stakeholders changed)
This is more or less the role of consultants in the movie Office Space, I think. McK et al seem like a very, very expensive way to do that.
But if firms are paying for kind of "referee services" (as in: make this decision for us because we can't) then I understand. Why they don't want industry experts w/ subject matter expertise is puzzling to me.
If you have a tough call to make as a C level you pay one of the 'big four' to come in with their powerpoints and offer a solution.
I'm highly skeptical of the value of these 'young' MBAs as well. Especially given an important detail, they never stick around to reap what they sow. i.e. They never actually gain the experience of a decision.
They are almost like professional academics in that sense, which would also explain their worship for MBAs
Disclaimer: I have worked a lot on at least one of those 7.
Would it be ideal if the senior management of a business that was struggling had all the abilities and dispassionate perspective to lead the company out of their doldrums? Sure. Does the fact that they’re struggling suggest something is missing? Probably. Can a firm like McKinsey help them navigate out? The payoff times chance of success seems very much worth the cost and risk.
I’ve argued to use McKinsey for a pricing project by saying “I’d pay $500K just for someone to come in, evaluate, and tell us truthfully that what we were doing was perfectly optimal and we shouldn’t change a thing. That’s about the worst case scenario here.”
Additionally, companies often hire a consulting company that has previously advised their competitors to indirectly benefit from a knowledge transfer. There will obviously not be a transfer of actual IP, but a lot of abstract knowledge about operations can be gained from these engagements.
Lastly, I don't have an MBA myself but I've worked with some extremely smart MBAs who absolutely blew most mediocre engineers out of the water in terms of intelligence, problem solving, people skills, etc.. Not every engineer is a super smart code wizard and not every MBA is an empty suit. Don't judge a book by its cover!
100% on board. Running a large organization is hard.
> You don't necessary need to be an industry expert to identify process improvements and many industry experts are really useless outside of their domain.
I guess this is their value to firms, I just find it extremely surprising that this is even possible. Is it possible to be specific about what value a 22 year old Yale econ grad (or 30 year old Northwestern MBA) w/ no industry-specific experience brings to, e.g., Boeing? Microsoft? Motorola?
> they had no experts in-house for the specific issue they were looking into and implemented our recommendations successfully after properly scrutinising it.
This seems like a great use-case for consulting, but by experts in the field, which McK et al are almost always not.
> companies often hire a consulting company that has previously advised their competitors to indirectly benefit from a knowledge transfer.
Very believable. If they are paying for information about what McK last told their competitors, that's understandable. Seems like that would not be in McK's interests though!
> I've worked with some extremely smart MBAs who absolutely blew most mediocre engineers out of the water in terms of intelligence, problem solving, people skills, etc.
Definitely agree. On the other hand, the MBA/PhD consultants I know don't have industry-specific experience in the areas they work in! This is the essence of the puzzle to me.
I took a project management course once. One of the things we were told is that project managers don't need to have domain knowledge or experience in order to be effective. I think it's possible, but not probable, since the project manager would lose an opportunity to tailor the standard project management practices to the needs of the specific project.
In any case, it would explain your observation. And I believe that effective project managers would recognize the value of domain knowledge and make an attempt to gain it even if they didn't start the project with it.
Oh, McKinsey and others are also experts in downsizing operations (i.e. letting people go) under the umbrella of efficiency improvements. When a new CEO comes in, they know that their compensation is tied to the share price of the company. Often one of the first things they do is to call in McKinsey to assess the efficiency of the company and then cut/outsource a few thousand jobs together with implementing some process improvements. Cutting expenses is easier and faster than delivering real value through innovation! Also, McKinsey - the experts - recommended this! At the next financial earnings call, the CEO can talk about how they increased their profit margins, investors like that the CEO is already delivering results so quickly, the stock price goes up, the CEO receives his bonus.
It's similar to what Bain Capital and other Private Equity investors do: they are not subject matter experts in a specific industry, but they are subject matter experts in capital extraction. I think this form of abstractive capitalism has done a lot of damage to many great companies, but as long as the system rewards this behaviour, there will be a lot of demand for consulting companies and private equity investors...maybe we should go back to the philosophy of old Greece, where the pursuit of knowledge was valued and the pursuit of wealth was openly derided (but use robots instead of slaves for day-to-day labor).
In the words of Plato (in his lat work, Laws): "My dear Clinias, small is the class of men—rare by nature and trained, too, with a superlative training — who, when they fall into diverse needs and lusts, are able to stand out firmly for moderation, and who, when they have the power of taking much wealth, are sober, and choose what is of due measure rather than what is large. The disposition of the mass of mankind is exactly the opposite of this; when they desire, they desire without limit, and when they can make moderate gains, they prefer to gain insatiably; and it is because of this that all the classes concerned with retail trade, commerce, and inn-keeping are disparaged and subjected to violent abuse."
1. McKinsey has the best corporate leadership training in the world. McKinsey consultants are very polished in terms of how speak, break down problems etc, navigate the business world etc. McKinsey has the kind of money to host trainings year round in extremely expensive locations e.g. Cambridge College or a lodge in the swiss alps. Consultants get the very best. 2. McKinsey has an "up-or-out" structure. This means that at each "level" in McKinsey you have a certain time period to make it to the next level, before you are kicked out. 3. McKinsey has an immense alumni network that gets "kicked out" of the mothership, or otherwise leave. Many people that kicked out go straight to managing Fortune 500 profit/loss sheets. Guess which consulting firm ex-mckinsey consultants prefer to hire?
In terms of specialist consulting, over time McKinsey consultants tend to specialize in certain industries e.g. automotive. The results from novel previous consulting engagements are saved as "playbooks", which any McKinsey consultant can reference. McKinsey has experts in every industry on every continent and every significant country. Some consultants/partners are brought in from outside when McKinsey tries to break into a new area.
Afaik all the consulting firms operate the same way, but since McKinsey is perceived as the cream of the crop, things work the best for McKinsey.
I never witnessed any unethical behavior while there.
FWIW my spouse worked for a former McK consultant for a while. She (the former consultant) was hired out of a top-three US professional school and promoted w/in the firm once (this is relevant to what follows), then left (presumably not promoted the second time).
From working up close w/ her for more than a year, my wife was unimpressed. This woman was tasked w/ estimating market sizes at the firm where they both worked. There was ample public data about this topic (health-related).
Whenever the woman didn't like the way the numbers looked (for god only knows what reason), she would just make them up! She would literally pull them out of thin air.
Specific example: If we open a clinic to treat X (or develop a drug), we can expect that there are Y total patients annually in our metro area (or patients w/ the condition nationally). [For many conditions, Y is something you can easily track or find out in a variety of data sources, many public.]
This woman would decide that Y was "too small". She was always interested in wildly exaggerating the size of the potential patient population to make her proposals look more appealing to the management.
I bet not all consultants are like that (this one was not promoted after all), but the hiring process cannot be that good and the training w/in the firm cannot be that good, if this person made it through, got hired, and then got promoted!
N=1 here and YMMV w/ consultants, of course, but this is my frame of reference.
Can you share some of your top takeaways or lessons learned from your colleagues?
The entire premise of outside consulting is for management to cover their own ass so they can just throw money at the thing. Most of the time they don't even understand or can define the problem they're trying to solve, just a business metric they're trying to satisfy.
There is a ton of this in cloud computing as well, especially in the AI / ML space. It’s marketed as a production-ready, plug-in solution, on the hopes that the customer isn’t smart enough to evaluate what they are getting. It’s sold as a replacement for an earnest need to understand problems and solutions.
Just consider how many cloud vendors charge pay-per-usage for things like pre-built ML models. It makes no sense to pay by usage unless you have a very clear understanding of what accuracy and business impact of failures you’ll get at that usage rate (which depends on your product / customers / data, not primarily on the vendor’s managed model).
So either you just trust the vendor and you are flying totally blind in terms of the real accuracy or business value you get per dollar, or you have to go ahead and hire expensive ML experts to maintain that vendor integration and understand its business impact. But in no world can you just buy business value direct from the vendor without someone in the loop actually producing clarified understanding.
I think it’s the same with big box consulting. The customer wishes to offload political battles and status turf wars to an outside authority that can just tell them the business value answer without anyone in the loop actually achieving understanding or clarity.
It’s pure fool’s gold. The corporate equivalent of obsessively visiting psychics or tarot card readers.
Unsurprisingly, I consider him one of the least competent bosses I've ever worked for.
https://blog.erratasec.com/2020/07/how-ceos-think.html
(written from perspective of security researcher, but the post is pretty general)
If the new strategy works, the CEO gets a bonus, if it fails, he can not be fired as he got the best advice.
I don't think anyone would dispute that these firms employ smart and talented people, but that doesn't mean they are worth the amount of money they earn to advise companies that they need do something that is, uh, sort of obvious. The podcast touches on an idea that is mentioned in some of these comments: for political reasons, the advice has to come from the outside.
https://freakonomics.com/podcast/i-consult-therefore-i-am-a-...
Due to a lack of knowledge/skills and failure to admit a mistake was made within management on their client's side, those interactions are in most cases wiped under the rug of damage control.