McKinsey & Company

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McKinsey & Company
Type Incorporated Partnership
Founded 1926
Headquarters New York City
Key people Ian Davis, Managing Director
Industry Management consulting
Products Management consulting services
Revenue US$ 4.37 billion (est. 2007)
Employees ~16,000 (~7,500 consultants)
Website www.mckinsey.com

McKinsey & Company is a global management consulting firm that focuses on solving issues of concern to senior management in large corporations and organizations. McKinsey serves as a trusted advisor to the world’s leading businesses, governments, and institutions. It is widely recognized as a leader and one of the most prestigious firms in the management consulting industry. It has been ranked as No.1 for 5 consecutive years in the Vault Top 50 consulting firms list.

Since McKinsey was founded by James O. McKinsey in 1926, it has grown into a leading global consultancy. Today McKinsey has over 7,500 consultants in 90 offices across 51 countries,[1] and the company's headquarters are in New York City. They help solve strategic, organizational, operational and technological problems, for some of the world's largest organizations. McKinsey's clients represent more than 70 percent of Fortune magazine’s most-admired list, more than 90 of the 100 leading global corporations, and governments in more than 35 countries.

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[edit] 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 three 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 McKinsey operates under a practice of "up or out," in which consultants must advance in their consulting careers within a time frame, or else are asked to leave the company.

Today McKinsey has over 7,500 consultants in 90 offices across 51 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. 'Forbes' estimated the firm's 2007 revenues at $4.37 billion in its list of largest private companies.

A controversial aspect of McKinsey's practice is that it is non-exclusive, and thus a conflict of interest could arise as different teams of consultants might work for direct competitors in an industry. This works to the company's advantage, as it does not require it to rule out working for potential clients; 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. Consultants are also prohibited from serving direct competitors unless they wait 3 or more years between the date they cease serving one competitor and begin serving the next. In some cases, consultants are forbidden from ever serving a competitor.

The firm competes primarily with the Boston Consulting Group, Bain & Company, Booz & Company and Monitor Group.

[edit] Company History

Known among its employees simply as "The Firm" [12], McKinsey & Company was founded in Chicago in 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. When McKinsey died, the Chicago and New York branches of the firm split up. In 1939, with the help of the New York partners, Bower resurrected the New York office and named it McKinsey & Company. One of the first partners at McKinsey, Andrew T. Kearney, retained the Chicago office and renamed the branch after himself, marking the start of the competing management consulting firm A.T. Kearney.

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.


[edit] 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.[2] The premise for this was that analytical rigor and fresh insights were of greater value to clients than conventional wisdom.[citation needed] McKinsey has been known to make rare exceptions to this policy by hiring senior staff from industry (John Sawhill being a noted example).[citation needed]

Recently, McKinsey has diversified by soliciting candidates from graduate programs in law, medicine, engineering, science, and the liberal arts as well as by recruiting "experienced hires" from a variety of professional backgrounds including the military, law and medicine. Today, roughly half of McKinsey consultants with a graduate degree are not MBAs.[3] These Advanced Professional Degree candidates (APDs) attend a training program before starting their careers at McKinsey.

McKinsey also recruits very selectively among undergraduates, hiring as "Business Analysts" recent graduates from top universities to work as consultants alongside its associates for about 18 to 24 months. A small number of candidates with master degrees also can be hired as BAs. The BA program is one of the most competitive in the industry and is coveted by many business-oriented undergraduates.[citation needed] Some business analysts choose to stay at McKinsey for an additional year as a BA, often to join an office abroad or specialize in a given industry. Many business analysts are sponsored by McKinsey to attend graduate schools, usually for a MBA but sometimes for other master's or Ph.D. degrees, after their initial two years at McKinsey and rejoin the firm afterwards. Some are offered a coveted "DTA" - direct to Associate offer which means they effectively skip 2 years ahead of their peer group, but must forgo any educational support from McKinsey.[citation needed]

[edit] McKinsey Alumni

Many of McKinsey consultants go on to be leaders in both business and non-business organizations after leaving McKinsey. More than 150 McKinsey alumni are CEOs of companies exceeding $1 billion in annual revenue. Most consultants leave to take management positions at various companies. Many are entrepreneurs—more than one in five start their own businesses after leaving the firm. Many join financial service or private equity(PE) industry (sometimes VC, more often LBO). Others head philanthropic foundations, educational institutions and other organizations in the social sector. And some are in government or pursuing their passion for inventing, filmmaking or art. Regardless of where they go, McKinsey alumni remain connected to McKinsey. McKinsey plays a central role in helping alumni stay in touch with the firm and each other. Through McKinsey alumni Web site, colleagues can look each other up, stay in touch with the firm and find new job opportunities.

Some statistics: 1 in 17 McKinsey alumni are CEOs. 1 in 3 McKinsey alumni work in financial services or private equity. 1 in 4 McKinsey alumni started their own businesses.

[edit] Notable current and former employees

Main article: List of McKinsey & Company people

McKinsey has produced a large number of CEOs and is referred by Fortune "the best CEO launch pad". More than 70 past and present CEOs at Fortune 500 companies are former McKinsey employees. Among McKinsey most notable alumni are Louis V. Gerstner, Jr. - former chairman and CEO of IBM and chairman of The Carlyle Group, James McNerney - chairman and CEO of Boeing, Helmut Panke - former chairman and CEO of BMW AG, Christopher A. Sinclair - former chairman and CEO of PepsiCo, James P. Gorman - Co-President of Morgan Stanley, Peter Wuffli - former CEO of UBS AG, Stephen Green - chairman of HSBC and Jeffrey Skilling, former (now incarcerated) CEO of Enron.

[edit] Publishing and public relations

McKinsey publishes several publications with internally-authored articles. A print and online publication, The McKinsey Quarterly[4] (published six times a year) offers journal-length articles on strategy, organization, marketing, and other topics of interest to senior executives. The company's Business Technology Office also publishes McKinsey on IT, a quarterly publication aimed at CIOs. The corporate finance practice publishes McKinsey on Finance, aimed at CFOs.[citation needed]

The Firm does not typically contribute to academic marketing or finance journals. Several McKinsey-authored business books have been written including The Alchemy of Growth, Creative Destruction, The War for Talent, and most notably In Search of Excellence.

The Firm also funds or participates in various industry conferences and forecasts. In Washington, DC, McKinsey runs the Global Institute, which studies macroeconomic trends.

[edit] Knowledge Management System

McKinsey invests significantly in its knowledge management system to support field consultants. The system includes generalist researchers, industry (and function)-specific experts and librarians, and access to journals and databases.[citation needed] In addition, consultant-authored internal "practice development" documents capture generalizable insights from client engagements. There are also methods to access individual consultants with expertise from previous client studies or previous employment, for background assistance (competitive information is not shared).[citation needed]Currently, McKinsey is in the process of launching a new service line, called Insights China by McKinsey & Company that provides access to the extensive proprietary knowledge that it has developed on China - both on its macroeconomic and demographic trends as well as the development of Chinese consumers.

[edit] Criticism

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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.[citation needed]

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, which was headed by McKinsey alumni and was one of the firm's biggest clients before its collapse.[5][6] Another notably troubled company associated with McKinsey includes Swissair, which entered bankruptcy.[7][8][9]

Other distrust toward McKinsey includes:

  • Misguided analysis, such as its recommendation in 1980 to AT&T that cellular phones would be a niche market[10]
  • Overemphasis 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's advice to reduce spending on infrastructure and return cash to shareholders instead.[11][12]
  • Concerns from teachers and parents regarding their consultation for public school districts. Recently, McKinsey worked for the Minneapolis Public Schools, where the firm recommended that the district cut "high costs," such as teacher health care, and recommended converting the 25 percent of schools that scored the lowest on standardized tests to privatized charter-school status (a plan under which schools receiving public funds are run by independent charter associations, or for-profit entities, and operate outside the authority of local school boards). Teachers in Seattle passed a resolution of non-compliance with McKinsey's study of the Seattle Public Schools in protest of their record of favoring privatization, high-stakes testing, and other tactics associated with the No Child Left Behind Act (see "Private Firm Gets Failing Grade" at, http://seattletimes.nwsource.com/html/opinion/2004078970_hagopian18.html).

Among other books and articles, The Witch Doctors, written by The Economist journalists John Micklethwait and Adrian Wooldridge, presents a series of blunders and disasters alleged to have been McKinsey's consultants' fault. Similarly, Dangerous Company: The Consulting Powerhouses 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.

McKinsey is credited in a recent CNN article with developing a controversial car insurance company practice in the mid-1990's. In this tactic, insurance companies will fight injury claims against them if the claim involves a soft tissue injury. This is done, the article alleges, because these types of injuries are hard to verify by X-ray or other common examination methods other than surgery.[13]

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."[13]

McKinsey is a named defendant in Hurricane Katrina litigation. Louisiana Attorney General of Foti's suit accuses McKinsey & Co., a consulting firm, of being the "architect" of sweeping changes in the insurance industry, starting in the 1980s. McKinsey advised insurers to "stop 'premium leakage' by undervaluing claims using the tactics of deny, delay, and defend," the suit alleges. [14]

[edit] References

  1. ^ McKinsey & Company (2008). Locations. Retrieved June 8, 2008.
  2. ^ Edersheim, Elizabeth Haas, McKinsey’s Marvin Bower: Vision, Leadership and the Creation of Management Consulting, 2004, John Wiley & Sons. [1]
  3. ^ McKinsey & Co. — Meet Us
  4. ^ The Mckinsey Quarterly [2]
  5. ^ Gladwell, Malcolm. "The Talent Myth," The New Yorker, July 22, 2002 [3]
  6. ^ Hwang, Suein and Rachel Emma Silverman "McKinsey's Close Relationship With Enron Raises Question of Consultancy's Liability," The Wall Street Journal, January 17, 2002 [4]
  7. ^ Byrne, John A., "Inside McKinsey: Enron isn't its only client to melt down. Suddenly, times are trying for the world's most prestigious consultant." Business Week, July 8, 2002 [5]
  8. ^ Buerkle, Tom with Rick Smith, "Who lost Swissair? In placing blame for the airline's collapse, Switzerland's smug establishment needs to take a long and hard look at itself" Institutional Investor Magazine, February, 2002 [6]
  9. ^ Knorr, Andreas and Andreas Arndt, "Swissair’s Collapse – An Economic Analysis," IWIM - Institute for World Economics and International Management, Universität Bremen, September 2003 [7]
  10. ^ Joel Garreau, Joel, "Our Cells, Ourselves," "Washington Post," 2/24/08, [8]
  11. ^ Hirst, Clayton, "The might of the McKinsey mob," The Independent, January 20, 2002 [9]
  12. ^ Barrie, Giles, "The land that timetables forgot," Property Week, May 25, 2001 [10]
  13. ^ Newman, Kathy, "Blair faces storm over report by McKinsey," Financial Times, November 25, 2005 [11]
  14. ^ http://www.wwltv.com/local/stories/wwl110707jbfoti.1ea60b40d.html

[edit] External links