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Whilst some of this is true, don't forget that there are so many large companies out there that are run in an extremely inefficient way by incompetent management, with business divisions generating hundreds of millions/billions that are in turn run by and staffed with mediocre people. For businesses operating at such scale, bringing in McKinsey, BCG or the likes can often lead to the implementation of a series of smaller process improvements that together add up to tens/hundreds of millions in cost savings. 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 did some consulting in university through a student consulting organisation (didn't make the move into consulting after uni, though) and felt completely embarrassed to present the findings of our research to the senior management of a successful medium sized business that was a market leader in their industry. After all, I hadn't even started working full-time and these people had decades of experience! However, they had no experts in-house for the specific issue they were looking into and implemented our recommendations successfully after properly scrutinising it.

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!

> don't forget that there are so many large companies out there that are run in an extremely inefficient way by incompetent management, with business divisions generating hundreds of millions/billions that are in turn run by and staffed with mediocre people.

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.

> 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.

Exactly! Good consultants are subject matter experts in process/project management. I guess this is what MBAs and PhD consultants are really good at: they have a big toolkit of industry best practices because their employers advise so many (often market-leading) companies in any given industry and they are good at doing in-depth research to apply these best practices to the specific requirements of their client. Not being a subject matter expert can sometimes be quite helpful when assessing a project/process as you have more room for free associative thought than a SME.

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."

They sell executive immunity.

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

Minor nitpick: big 3 strategy consultants (MBB: McKinsey Boston Bain), big 4 auditors (Deloitte, PwC, EY, KPMG). Big 4 also does strategy consulting but they are not the prototypical executive immunity sellers. Big 4 typically has more down to earth / implementation experience due to commanding lower prices and thus ability to stick for longer in a sustainable way (what you complain about).

Disclaimer: I have worked a lot on at least one of those 7.

I don't know if true, but here I heard rumours it is basically like this: the company needs to restructure, everybody knows it, but there is too much Powerplay inside the company to agree on anything (like the manager doesn't want to tell his team of 200 people that their department is history). So as a compromise it is agreed to hire a consulting firm to reshape the company for the 22nd century, with the agreement to implement their advise.

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)

> the company needs to restructure, everybody knows it, but there is too much Powerplay inside the company to agree on anything

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.

Well put. This goes to the essential unknowability of causality (Godel incompleteness) and the uncomputability of plans (Turing halting problem).

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.

Because the world is powered on a combination of "cover one's own behind", "good enough", and "someone else's problem".

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.

This is the way corporations do business on many fronts. For example, I'm convinced that most of Oracle's business is accounted for by CTOs who threw millions of dollars at them without having any idea why. At least no idea beyond somehow believing that you're not serious unless you're using Oracle.

There are a few things you are missing.

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.

> 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.

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.

>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 location

Can you share some of your top takeaways or lessons learned from your colleagues?

This is an ever recurring critique of McKinsey and as a long-ago (and very jaded) McKinsey associate this isn’t quite right. The on ground teams do valuable analytical and data sourcing work but the clients are really paying for the counsel of the partners/directors. The 22 year old grad is providing the necessary information inputs and implementation details for the partners/directors to make effective recommendations.

Many business problems are relatively straightforward challenges of execution where experience in a nearby industry and no vested interest in the specific path chosen are qualifying and worthwhile attributes to bring to the table.

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.”