McKinsey & Company

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McKinsey & Company
Type Incorporated Partnership
Founded 1926
Key people Dominic Barton, Worldwide Managing Director
Industry Management consulting
Products Management consulting services
Revenue US$ 6.0 billion (est. 2008)[1]
Employees ~16,500 (~9,000 consultants)
Website www.mckinsey.com

McKinsey & Company is a worldwide management consulting firm that focuses on solving issues of concern to senior management. McKinsey serves as an adviser 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.[2] It has been ranked No.1 for 6 consecutive years in the Vault.com list of top consulting firms,[3] and has been a top employer for recent MBA graduates since 1996.[4]

Contents

[edit] Organization

McKinsey & Co., while formally organized as a corporation, functions as a partnership in all important respects. Its managing director is elected for a three year term by the firm's senior shareholders (referred to as "directors", even if they are not company directors). Each managing director can serve a maximum of three terms. At a strategic level, a number of committees are charged with the development of policies and the making of critical decisions. McKinsey operates under a practice of "up or out," in which consultants must either advance in their consulting careers within a pre-defined time-frame, or else be fired.

McKinsey has over 8,700 consultants in 90 consulting offices across 50 countries. Clients include three of the world's five largest companies, two-thirds of the Fortune 1000, governments and other non-profit institutions. 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. Forbes estimated the firm's 2008 revenues at $6.0 billion. [5]

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. While still working for McKinsey, consultants are prohibited from serving direct competitors unless they wait 2 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's primary competitors are Boston Consulting Group and Bain & Company, along with other top-tier consulting firms.

[edit] History

James O. McKinsey & Company was founded in Chicago in 1926 by James O. ("Mac") McKinsey, an accounting professor at the University of Chicago, Booth School of Business, who pioneered budgeting as a management tool. Marshall Field's became a client in 1935, and soon convinced McKinsey to leave the firm and become its CEO; however, he died unexpectedly of pneumonia in 1937.

Marvin Bower, who had joined the firm in 1933, succeeding McKinsey when he left, oversaw the firm's rise to global prominence and established many of its guiding principles. 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 renamed 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.

[edit] Recruiting

Marvin Bower broke with current industry practice by hiring recent graduates from the best business schools rather than among experienced managers.[6] Today, the firm is among the top recruiters of graduates of the top ranked business programs in the US and overseas, in addition to hiring a significant number of people with other advanced degrees in science, medicine, engineering and law. The firm is notable for the number of Rhodes Scholars it is able to recruit.[7]

[edit] Notable current and former employees

Main article: List of McKinsey & Company people

McKinsey has produced more CEOs than any other company and is referred to by Fortune magazine as "the best CEO launch pad".[8] 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, Jonathan Schwartz, CEO of Sun Microsystems, Jeffrey Skilling, former (now incarcerated) CEO of Enron, Marius Kloppers - CEO of BHP Billiton, and Bobby Jindal, current Governor of Louisiana.

[edit] Publishing

McKinsey publishes several publications, including McKinsey Quarterly[9], McKinsey on Business Technology, McKinsey on Payments, McKinsey on Corporate and Investment Banking, and McKinsey on Finance. Several McKinsey-authored business books have been written, including Valuation: Measuring and Managing the Value of Companies, The Alchemy of Growth, Creative Destruction, The War for Talent, and, most notably, In Search of Excellence.

[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. McKinsey maintains an organisation called the McKinsey Knowledge Centre (McKC) that operates out of Waltham, MA; Brussels; and Gurgaon, India.[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).

[edit] Criticism

 This article contains weasel words, vague phrasing that often accompanies biased or unverifiable information. Such statements should be clarified or removed. (December 2007)
This article's factual accuracy is disputed. Please see the relevant discussion on the talk page. (March 2008)

Some 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.

Client confidentiality is maintained even among former employees, 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.[10][11] Jeff Skilling, sentenced to 24 years in federal prison, was a partner at McKinsey and "loyal alum." Another notably troubled company associated with McKinsey is Swissair, which entered bankruptcy.[12]. Other client companies that ultimately filed for bankruptcy include Kmart and Global Crossing.

McKinsey's reputation has come under scrutiny several times in recent years:

  • Anil Kumar, 51, of Santa Clara, California, a director at McKinsey & Co. Inc arrested in insider trading corruption scheme on 10/16/2009 - Ref:Larry Neumeister, Associated Press Writer
  • Misguided analysis, such as its recommendation in 1980 to AT&T that cellular phones would be a niche market[13]
  • 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.[14][15]
  • 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.[16]
  • Partially responsible for the demise of Swissair after they recommended The Hunter Strategy

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 cited in a February 2007 CNN article with developing controversial car insurance company practices used by State Farm and Allstate in the mid-1990s to avoid paying claims involving 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.[17]

Former 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."[18]

McKinsey is a named defendant in Hurricane Katrina litigation. Louisiana Attorney General Charles Foti's suit accuses McKinsey of being the "architect" of sweeping changes in the insurance industry, starting in the 1980s. The suit alleges McKinsey advised insurers to "stop 'premium leakage' by undervaluing claims using the tactics of deny, delay, and defend.[19]

[edit] Competitors

McKinsey's primary competitors are Boston Consulting Group and Bain & Company, though the company also competes with other prominent consulting firm.


[edit] References

  1. ^ "McKinsey & Company on Forbes' America's Largest Private Companies list". http://www.forbes.com/lists/2009/21/private-companies-09_McKinsey-Co_IPPW.html. Retrieved 2009-11-16. 
  2. ^ Huey, John. "How McKinsey Does It," Fortune, November 1, 1993
  3. ^ Vault Top 50 consulting firms list
  4. ^ Fisher, Anne. "For new MBAs, a California lifestyle beats big bucks" Fortune, May 3, 2007
  5. ^ "America's Largest Private Companies" Fortune, October 28, 2009
  6. ^ Edersheim, Elizabeth Haas, McKinsey’s Marvin Bower: Vision, Leadership and the Creation of Management Consulting, 2004, John Wiley & Sons. [1]
  7. ^ Schaeper, Thomas J. Rhodes Scholars, Oxford, and the Creation of an American Elite, page 300, 2004, Berghahn Books. [2]
  8. ^ Jones, Del. "Some firms' fertile soil grows crop of future CEOs" USA Today, Jan 1, 2008
  9. ^ McKinsey Quarterly
  10. ^ Gladwell, Malcolm. "The Talent Myth," The New Yorker, July 22, 2002 [3]
  11. ^ 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]
  12. ^ 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]
  13. ^ Joel Garreau, Joel, "Our Cells, Ourselves," "Washington Post," 2/24/08
  14. ^ Hirst, Clayton, "The might of the McKinsey mob," The Independent, January 20, 2002 [6]
  15. ^ Barrie, Giles, "The land that timetables forgot," Property Week, May 25, 2001 [7]
  16. ^ "Private Firm Gets Failing Grade" http://seattletimes.nwsource.com/html/opinion/2004078970_hagopian18.html
  17. ^ Auto insurers play hardball in minor-crash claims - CNN.com
  18. ^ Newman, Kathy, "Blair faces storm over report by McKinsey," Financial Times, November 25, 2005 [8]
  19. ^ Foti files lawsuit against insurance companies, alleges price-fixing | News for New Orleans, Louisiana | Local News | News for New Orleans, Louisiana | wwltv.com

[edit] External links

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