McKinsey & Company
|Founders||James O. McKinsey|
|Headquarters||New York City, U.S.|
|Number of locations||107 offices|
|Key people||Marvin Bower, spiritual founder|
|Revenue||$7.8 billion (2013)|
McKinsey & Company, Inc. is an American global management consulting firm headquartered in the U.S. The firm serves as an adviser to businesses, governments, and institutions. It was founded in 1926 in Chicago by James McKinsey as James O. McKinsey & Company and is now headquartered in New York City.
Many chief executive officers of large companies have worked at the firm. There were over 100 McKinsey offices in 60 countries as of September 2013.
- 1 History
- 2 Organization
- 3 Consulting services
- 4 Recruiting and compensation
- 5 Knowledge management system
- 6 Research & Publishing
- 7 Consulting projects
- 8 Notes
- 9 References
- 10 External links
McKinsey & Company was founded under the name James O. McKinsey & Company in 1926 by James McKinsey, a professor of accounting at the University of Chicago. The idea for McKinsey was conceived after Mr. McKinsey witnessed inefficiencies in military suppliers while working for the U.S. Army Ordnance Department.:4 The firm called itself an "accounting and management firm" and started out giving consulting on using accounting principles as a management tool.:3 Mr. McKinsey's first partners were Tom Kearney, hired in 1929,[a] and Marvin Bower, hired in 1933.:133[b] In its first few years of operation, the firm grew quickly and began developing rapport among corporations;:4 its second office was opened in New York City in 1932.:20 In 1935 Mr. McKinsey left the firm temporarily to serve as the Chairman and CEO of client Marshall Field's as it implemented the restructuring plan created by James O. McKinsey & Company.:133:5
McKinsey was merged with accounting firm Scovell, Wellington & Company that same year, creating the New York-based McKinsey, Wellington & Co. and splitting off the accounting practice into Chicago-based Wellington & Company.:5 A Wellington project that accounted for 55 percent of McKinsey, Wellington & Company's billings was about to expire and Tom Kearney and Marvin Bower had disagreements about how to run the firm. Bower wanted to expand nationally and hire young business school graduates, whereas Kearney wanted to stay in Chicago and hire experienced accountants.:134 Additionally, in 1937 James O. McKinsey passed away after catching pneumonia.
This led to the division of McKinsey, Wellington & Company in 1939. The accounting practice returned to Scovell, Wellington & Company, while the management engineering practice was split into McKinsey & Company and McKinsey, Kearney & Company. Bower had partnered with Guy Crockett from Scovell Wellington, who invested in the new McKinsey & Company and became Managing Partner, while Marvin Bower is credited with founding the firm's principles and strategy as his deputy. The New York office purchased exclusive rights to the McKinsey name in 1946.:25
McKinsey & Company grew quickly in the 1940s and 50s, especially in Europe.:12-13:25 It had 88 staff in 1951 and more than 200 by the 1960s, including 37 in London by 1966. By 1966 McKinsey had six offices in major US cities like San Francisco, Los Angeles and Washington D.C., as well as six abroad. These foreign offices were primarily in Europe, such as in London, Paris, Amsterdam, as well as in Melbourne.:12-13 By this time, one third of the company's revenues originated from its European offices. Guy Grockett stepped down as managing director in 1950, and Marvin Bower was elected in his place.:61 McKinsey's profit-sharing, executive and planning committees were formed in 1951. The organization's client base expanded especially among governments, defense contractors, bluechip companies and military organizations in the post-World War II era. After seven years of deliberation, McKinsey became a private corporation with shares owned exclusively by McKinsey employees in 1956.:12
After Bower stepped down in 1967, the firm's revenues declined. New competitors like the Boston Consulting Group and Bain & Company created increased competition for McKinsey by marketing specific branded products, such as the Growth-Share Matrix, and by selling their industry expertise. In 1971, McKinsey created the Commission on Firm Aims and Goals, which found that McKinsey had become too focused on geographic expansion and lacked adequate industry knowledge. The commission advised that McKinsey slow its growth and develop industry specialties.:14 In 1976, Ron Daniel was elected managing director, serving until 1988.:42 Daniel and Fred Gluck helped shift the firm away from its generalist approach by developing 15 specialized working groups within McKinsey called Centers of Competence and by developing practice areas called Strategy, Operations and Organization. Daniel also began McKinsey's knowledge management efforts in 1987.:15-17 This led to the creation of an IT system that tracked McKinsey engagements, a process to centralize knowledge from each practice area and a resource directory of internal experts.":6-7 By the end of his tenure in 1988 the firm was growing again and had opened new offices in Rome, Helsinki, São Paulo and Minneapolis.:15-17
Fred Gluck served as McKinsey’s managing director from 1988 to 1994. The firm's revenues doubled during his tenure. He organized McKinsey into 72 "islands of activity" that were organized under 7 sectors and 7 functional areas.:18 By 1997, McKinsey had grown eightfold over its size in 1977. In 1989 the firm attempted to make a talent acquisition in IT services through a $10 million purchase of the Information Consulting Group (ICG), but a culture clash caused 151 out of the 254 ICG staff members to leave by 1993.
In 1994, Rajat Gupta became the first non-American-born partner to be elected as the firm’s managing director. By the end of his tenure, McKinsey had grown from 2,900 to 7,700 staff and 58 to 84 locations. He aggressively opened new international offices in cities such as Moscow, Beijing and Bangkok.:20 Continuing the structure developed by prior directors, Gupta also created 16 industry groups charged with understanding specific markets and instituted a three-term limit for the managing director.:22 McKinsey created practice areas for manufacturing and business technology in the late 1990s.:21, 23
McKinsey set up "accelerators" in the 1990s, where the firm accepted stock-based reimbursement to help internet startups; the company performed more than 1,000 e-commerce projects from 1998-2000 alone.:24 The burst of the dot-com bubble led to a reduction in utilization rates of McKinsey's consultants from 64 to 52 percent. Though McKinsey avoided dismissing any personnel following the decline, the decline in revenues and losses from equity-based payments as stock interests lost their value, together with a recession in 2001, meant the company had to reduce its prices, cut expenses and reduce hiring.:25
In 2001, McKinsey launched several practices that focused on the public and social sector. It took on many public sector or non profit clients on a pro bono basis. By 2002 McKinsey had invested a $35.8 million budget on knowledge management, up from $8.3 million in 1999.:1 Its revenues were 50, 20 and 30 percent from strategy, operations and technology consulting respectively.:20
In 2003 Ian Davis, the head of the London, U.K. office, was elected to the position of managing director. Davis promised a return to the company’s core values, after a period in which the firm had expanded rapidly, which some McKinsey consultants felt was a departure from the company's heritage. Also in 2003, the firm established a headquarters for the Asia-Pacific region in Shanghai, China. By 2004, more than 60 percent of McKinsey's revenues were generated outside the U.S. The company started a Social Sector Office (SSO) in 2008, which is divided into three practices: Global Public Health, Economic Development and Opportunity Creation (EDHOC) and Philanthropy. McKinsey does much of its pro-bono work through the SSO, whereas a Business Technology Office (BTO), founded in 1997, provides consulting on technology strategy.
Galleon insider trading scandal
FBI wiretap from July 28, 2008 of McKinsey senior partner emeritus Rajat Gupta speaking to Galleon Group founder Raj Rajaratnam about Goldman Sachs, senior partner Anil Kumar, Galleon International and Kohlberg Kravis Roberts
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McKinsey senior executives Rajat Gupta and Anil Kumar were among those convicted in an ongoing government investigation into insider trading for sharing inside information with Galleon Group hedge fund owner Raj Rajaratnam. Gupta and Kumar were close friends of each other and of Rajaratnam, as well as the co-founders of the Indian School of Business and (with Rajaratnam) of New Silk Route. Though McKinsey was not accused of any wrongdoing, the convictions were embarrassing for the firm, for which integrity and client confidentiality are a major premise of its business. Following the initial allegations McKinsey no longer maintains a relationship with either senior partner, though the manner in which it severed ties attracted controversy.
Senior partner Anil Kumar, described as Gupta's protégé, left the firm after the allegations in 2009 and pleaded guilty in January 2010. While he and other partners had been pitching McKinsey's consulting services to the Galleon Group, Kumar and Rajaratnam reached a private consulting agreement violating McKinsey's policies on confidentiality. He testified in criminal trials against both Gupta and Rajaratnam.
During Undertaker's trial, a wiretap recording showed Rajaratnam and his brother had also contacted McKinsey junior partner and Kumar protégé David Palecek, saying he was "a little dirty." Palecek's widow claimed he had been approached but refused to be a part of the incident.
Former managing director (CEO) Rajat Gupta was convicted in June 2012 of four counts of conspiracy and securities fraud, and acquitted on two counts, resulting from his board memberships at Goldman Sachs and Procter & Gamble while a senior partner emeritus of McKinsey. In October 2011, he was arrested by the FBI on criminal charges of sharing insider information from these confidential board meetings with Rajaratnam. Gupta was convicted, among other crimes, of passing information to Rajaratnam within 4 minutes of the completion of a special Goldman Sachs board meeting to approve a capital injection by Warren Buffett during the height of the financial crisis in 2008. He stood to profit as the chairman of Galleon International and as the chairman of New Silk Route. At least twice, Gupta used a McKinsey phone to call Rajaratnam and retained other perks — an office, assistant, and $6 million retirement salary that year — as a senior partner emeritus.
After the scandal McKinsey reviewed of its policies and procedures, including investigating other partners' ties to Gupta. There is no evidence of any damage to McKinsey's brand, though some controversy has been leveled at the firm for having former leading senior partners (Gupta and Kumar) as well as a junior partner (Palecek) all implicated with the Galleon Group and insider trading. The firm's revenues grew 10% during the same period, though its long term impact remains unknown.
McKinsey & Company was originally organized as a partnership before being legally restructured as a private corporation with shares owned by its Partners in 1956. It mimics the structure of a partnership and employees are called "partners". The company has a flat hierarchy and each member is assigned a mentor.:65, 142 Since the 1960s, McKinsey's Managing Director has been elected by a vote of senior directors to serve up to three, three-year terms or until they reach the mandatory retirement age of 60. The firm is also managed by a series of committees that each have their own area of responsibility.:22
McKinsey has a de-centralized structure, whereby different offices operate similarly, but independently. Each office is expected to put the overall organization's best interest before the office's, which McKinsey refers to as the "one firm" principle. Consultants and engagements are often shared across offices.:11 Revenues from all offices are pooled and an individual office's revenue does not directly affect it financially. The company's budgeting is centralized, but individual consultants are given a large degree of autonomy.
McKinsey consultants are either industry experts, functional experts, or a generalist that covers a geographic region. The firm has 23 Industry Practices focused on individual industries, 9 Functional Practices that work in areas like finance, marketing or risk, and 5 Capabilities and Solutions areas related to technology consulting.
Former McKinsey & Company partner Marvin Bower created the firm's principle of only working with CEO, which was later expanded to CEOs of subsidiaries and divisions. He also created McKinsey's principle of only working with clients the firm felt would follow its advice. This was reinforced in 1945, when McKinsey & Company published its New Engagement and Executive Relations Guide, which emphasized the need to persuade clients to take action based on McKinsey's recommendations. Bower also established the firm's language. It calls itself “The Firm” and its employees “members”. McKinsey claims its consultants are not motivated by money.
McKinsey & Company tries to keep a “very low profile public image.” The firm has a policy against discussing specific client situations. It says it does not advertise, though it did advertise allegedly for recruitment purposes in TIME Magazine in 1966. Members are not supposed to “sell” their services, a tradition based in the early 1900s, when it was considered beneath the dignity of a lawyer or accountant to advertise. McKinsey's consultants are also expected to become a part of the community and recruit clients through church, charitable foundations, board positions and other community involvements.
Many of McKinsey's alumni become CEOs of major corporations or hold important government positions. In doing so, they spread McKinsey's values and culture to other organizations and often become McKinsey clients. McKinsey's alumni have been appointed as CEOs or high-level executives at American Express, IBM, Westinghouse Electric Sears, AT&T, PepsiCo and Enron. Some McKinsey alumni have held positions with Tony Blair's office. Citicorp and Merrill Lynch have also hired many McKinsey alumni. As of 2008, McKinsey alumni held CEO positions with 16 corporations that have more than $2 billion in revenue. The firm was ranked by USA Today as the most likely company to work for and become a future CEO of a major corporation, with odds of 1 out of 690. McKinsey's consulting work has also been influential in establishing many of the norms of how governments and corporations are run.
A 1993 profile story in Fortune Magazine said McKinsey & Company was “the most well-known, most secretive, most high-priced, most prestigious, most consistently successful, most envied, most trusted, most disliked management consulting firm on earth.” According to BusinessWeek the Firm is "ridiculed, reviled, or revered depending on one's perspective."
McKinsey's culture has often been compared to religion, because of the influence, loyalty and zeal of its members. Fortune Magazine said partners talk to each other with "a sense of personal affection and admiration." The Wall Street Journal said McKinsey is seen as “elite, loyal and secretive.” According to Reuters it has a "button-down culture" focused on “playing by the rules”. According to BusinessWeek, “some observers” say that McKinsey has started to lose touch with its founding principles and become less personal as its size has increased.
The Guardian said at McKinsey “hours are long, expectations high and failure not acceptable.” Fortune and USA Today have both noted that the majority of McKinsey's consultants are white men. An article in The News Observer said McKinsey's internal culture was "collegiate and ruthlessly competitive" and is sometimes described as arrogant.
McKinsey provides management consulting services, such as providing advice on an acquisition, developing a plan to restructure a sales force, creating a new business strategy or providing advice on downsizing. Its consultants design and implement studies to evaluate management decisions using data and interviews to test hypotheses. Conclusions of the study are presented to senior management, typically in a PowerPoint presentation and a booklet. McKinsey is one of “The Big Three” management consulting services along with Bain & Company and The Boston Consulting Group. According to McKinsey, it serves more than 80 percent of the world's largest organizations and more than 80 percent of Fortune Magazine's Most Admired Companies List.
McKinsey is considered one of the most prestigious and most expensive management consulting firms. In Dangerous Company, journalists James O'Shea and Charles Madigan said McKinsey is the most influential, most reputable management consulting firm in the industry and that it carried the most weight with corporate boards. The News Observer said McKinsey is the "creme de la creme" and the "Rolls Royce" of management consulting. Between 2002 and 2014, McKinsey has been ranked in the number one position of the "The Best Consulting Firms: Prestige" list of the Vault.com career intelligence website and was cited as the "most prestigious consulting firm of all" in a 2011 New York Times article.
However, McKinsey & Company has traditionally charged approximately 25 percent more than competing firms with an average project of one million dollars. Prices were reduced in the economic slump following the Dot-com bubble. According to the Wall Street Journal, McKinsey clients estimate that the firm's advice turns out to be poor in retrospect about 10 to 20 percent of the time.
A typical McKinsey engagement can last between two and twelve months and involves three to six McKinsey consultants. An engagement is usually managed by a generalist that covers the region the client's headquarters are located in and specialists that have either an industry or functional expertise. Unlike some competing consulting firms, McKinsey does not hold a policy against a consultant working for two competing companies. This has sometimes lead to accusations of sharing confidential information or re-packaging a competitor's practices as best practices.
Marginal abatement cost curves attempt to compare the financial costs of different options for reducing pollution in a region and are used in emissions trading, policy discussions and incentive programs. McKinsey & Company released its first marginal abatement cost (MAC) curve for greenhouse gas emissions in February 2007, which was updated with version two in January 2009. McKinsey's curve became the most widely used and the basis for McKinsey’s consulting on climate change and sustainability.
McKinsey's curve predicts negative cost abatement strategies, which has been controversial among economists. The International Association for Energy Economics said in The Energy Journal that McKinsey's cost-curve was popular among policymakers, because it suggests they can take “bold action towards improving energy efficiency without imposing costs on society.” The Brookings Institution said the negative-cost projections were “peculiar”, while Paul Krugman, a professor from Princeton, said that there was already a body of academic literature establishing that there are missed opportunities for reducing costs while also reducing pollution.
In a 2010 report, the Rainforest Foundation UK said McKinsey's cost curve methodology was misleading for policy decisions regarding the Reduced Emissions from Deforestation and Forest Degradation (REDD) program. The report argued that McKinsey's calculations exclude certain implementation and governance costs, which makes it favor industrial uses of forests while discouraging subsistence projects. In April 2011, Greenpeace UK commissioned a report by the UCL Energy Institute that urged for caution in using McKinsey's curve. It criticized McKinsey for not disclosing the assumptions behind the cost-curve's calculations. Greenpeace also said the curve has allowed Indonesia and Guyana to win financial incentives from the United Nations by creating inflated estimates of current deforestation so they could demonstrate reductions in comparison. McKinsey said they had made it clear in the cost-curve publications that cost curves do not translate “mechanically” into policy implications and that policymakers should consider “many other factors” before introducing new laws. The UCL report also noted McKinsey had published the curve with “suitable caveats” and disclosed some of the shortcomings of using MAC curves itself.
Recruiting and compensation
McKinsey & Company was the first management consultancy to hire fresh graduates instead of experienced business managers, when it started doing so in 1953. Many of its recruits are Baker Scholars, Rhodes scholars, Marshall Scholars or White House Fellows. Less than half of the firm's recruits are from business majors,:7 while others have advanced degrees in science, medicine, engineering or law. Some colleges have a team of McKinsey consultants assigned to cultivating relationships with upcoming graduates.:158
According to The Observer, McKinsey recruits fresh graduates and "imbues them with a religious conviction" in the firm, then culls through them with its "up-or-out" policy. The "up or out" policy, which was established in 1951, means that consultants that are not being promoted within the firm are asked to leave.:208 About one-fifth of McKinsey's consultants depart under the up or out policy each year. McKinsey's practice of hiring fresh graduates and the "up-or-out" philosophy, were originally based on Marvin Bower's experiences at the law firm Jones Day in the 1930s, as well as the "Cravath system" used at the law firm Cravath, Swaine and Moore.:206
According to Financial Times journalist Duff McDonald, as of September 2013, the firm receives 225,000 employment applications annually and about one percent—or 2,200—of the applicants are hired. There is an ongoing debate within the firm on how fast it should grow.
According to a report by WetFeet, McKinsey "offers some of the best experience, opportunity and professional development in the industry" and it is prestigious to have McKinsey on a resume. However, the work environment is demanding, involves extensive travel and long hours. Consulting Magazine's 2007 list of "Best Consulting Firms to Work For" ranked McKinsey as number 3.
Since it is a private firm, McKinsey is not required to disclose compensation figures. New undergraduate McKinsey recruits are paid $80,000 a year, and estimates of the managing director salary in the mid-nineties range from $5–10 million. However, these numbers have likely increased substantially: according to a book citing the company's own internal history, "Between the mid-nineties and 2000, the ratio of directors to consulting staff, which includes associates, increased to 1:17 from 1:12. Even as revenues grew by more than three and a half times, the partnership grew more slowly, by about two and a half times. [...] The effect of the discrepancy was to enrich the existing partners." For example, according to an article citing public tax records, the senior partner leading McKinsey's Norwegian office in 2011 earned 67 million NOK, or between $11 and $12 million USD. A 1993 Fortune profile says, "The Firm places itself above discussing money as a motivation, yet senior partners often earn as much, or more, than the CEOs they advise."
Knowledge management system
McKinsey has used a knowledge management system to support field consultants. It was created and chaired by former senior partner Anil Kumar as an early example of knowledge process outsourcing. By 2009, the firm consisted of 400 directors (senior partners), up from 151 in 1993, and Dominic Barton was elected as Managing Director, a role he was re-elected for in 2012. The system includes generalist researchers, industry-experts, librarians and function-specific experts and includes access to journals and databases. McKinsey maintains an organisation called the McKinsey Knowledge Centre (McKC) to provide rapid access to specialized expertise and business information.
Research & Publishing
McKinsey & Company consultants regularly publish books, research and articles about business and management.:51:55 The firm spends $50–$100 million a year on research.:54 McKinsey was one of the first organizations to fund management research, when it founded the Foundation for Management Research in 1955. The firm began publishing a business magazine,The McKinsey Quarterly, in 1964. It funds the McKinsey Global Institute, which studies global economic trends and was founded in 1990. Many consultants are contributors to the Harvard Business Review. McKinsey consultants published only two books from 1960-1980, then more than 50 from 1980 to 1996.:55 McKinsey's publications and research give the firm a "quasi-academic" image.
A McKinsey book, “In Search of Excellence”, was published in 1982. It featured eight characteristics of successful businesses based on an analysis of 43 top performing companies.:87-89:348 It became one of the most influential and highly read management books:348 and marked the beginning of McKinsey's shift from accounting to "softer" aspects of management, like skills and culture.:359 In Search of Excellence's distribution prompted others, including McKinsey consultants, to write more management books. According to David Guest from King's College In Search of Excellence became popular among business managers because it was easy to read, well-marketed and some of its core messages were valid. However, it was disliked by academics because of flaws in its methodology. Additionally, a 1984 analysis by BusinessWeek found that many of those companies identified as "excellent" in the book no longer met the criteria only two years later.
A 1997 article and a book published in 2001 on “The War for Talent” prompted academics and the business community to start focusing more on talent management.:163 The authors found that the best-performing companies were "obsessed" with acquiring and managing the best talent. They advocated that companies rank employees by their performance and promote “stars”, while targeting under-performers for improvement or layoffs. After the book was published, the Enron scandal led to the bankruptcy of a company that followed many of the principles in the book. In May 2001, a Stanford professor wrote a paper critical of the "War on Talent" arguing that it prioritized individuals at the expense of the larger organization.
McKinsey consultants published Creative Destruction in 2001.:247 The book suggested that CEOs need to be willing to change or rebuild a company, rather than protect what they've created. It found that out of the first S&P 500 list from 1957, only 74 were still in business by 1998. The New York Times said it “makes a cogent argument that in times of rampant, uncertain change... established companies are handcuffed by success.” In 2009, McKinsey consultants published “The Alchemy of Growth”, which established three “horizons” for growth: core enhancements, new growth platforms and options. Its three horizons became adopted widely, because it gave executives a practical and simple vocabulary for thinking about growth.
In February 2011, McKinsey surveyed 1,300 US private-sector employers on their expected response to the Affordable Care Act (ACA). 30 percent of respondents said they anticipated they would probably or definitely stop offering employer sponsored health coverage after the ACA went into effect in 2014. These results, published in June 2011 in the McKinsey e-Quarterly, became "a useful tool for critics of the ACA and a deep annoyance for defenders of the law" according to an article in TIME Magazine. Supporters of healthcare reform argued the survey far surpassed estimates by the Congressional Budget Office and insisted that McKinsey disclose the survey's methodology. Two weeks after publishing the survey results, McKinsey released the contents of the survey including the questionnaire and 206-pages of survey data. In its accompanying statement, McKinsey said the survey should not be compared with other estimates that use different methodologies and that it was intended to capture the attitude of employers at a certain point in time rather than make a prediction. A subsequent article in TIME Magazine called McKinsey’s disclaimer that the survey was not predictive "rather absurd," but said the survey methodology was sound. Some supporters of the Affordable Care Act criticized the survey's methodology, arguing it used slanted questions, cherry-picked information and had uninformed recipients.
Criticism of management advice
Failures of McKinsey—according to Adam Sternbergh writing in Bloomberg Businessweek—include its massive reorganization of General Motors in the early 1980s "that's widely judged as disastrous," its close relationship with Enron, and its vigorous support for the Time Warner merger with AOL.
According to a 1993 profile in Fortune Magazine, “while McKinsey has consulted for many of the current era's great successes... it has also been a fixture at many of the big losers.” In The Firm author Duff McDonald said McKinsey helped restructure the white house, guided corporations through large-scale re-organizations in post-war Europe and facilitated turn-arounds, but in other cases advised companies to adopt strategies that led to their collapse or was unable to prevent an impending bankruptcy. According to The Firm "McKinsey was a major player in the efficiency boom in the 1920s, the postwar gigantism of the 1940s, the rationalization of government and rise of marketing in the 1950s, the age of corporate influence in the 1960s, the restructuring of America and rise of strategy in the 1970s, the massive growth in information technology in the 1980s, the globalization of the 1990s, and the boom-bust-and-cleanup of the 2000s." It has been influential in establishing the norms of business, such as working in large-scale office settings.
McKinsey & Company's founder, James McKinsey, introduced the concept of budget planning as a management framework in his fifth book Budgetary Control in 1922.:25:422 The firm's first client was the treasurer of Armour & Company, who, along with other early McKinsey clients, had read Budgetary Control. In 1931 McKinsey created a methodology for analyzing a company called the General Survey Outline (GSO), which was established based on ideas introduced in the 1924 book Business Administration. It was also known as the Banker's Survey, because McKinsey's clients who used it in the 1930s were predominantly banks.:22 After the Wagner Act gave certain rights to employees to organize into unions in 1935, McKinsey started consulting corporations on employee relations. Later in the 1950s, the work of a McKinsey consultant on compensation was influential in “skyrocketing executive pay”. It also helped many companies such as Heinz, IBM and Hoover expand into Europe.
In the 1940s, McKinsey helped many corporations convert into wartime production for World War II. It also helped organize NASA into an organization that relies heavily on contractors in 1958.:105 McKinsey created a report in 1953 for Dwight Eisenhower that was used to guide government appointments. In 1973, McKinsey & Company led a project for a consortium of grocery chains represented by the U.S. Supermarket Ad Hoc Committee on a Uniform Grocery Product Code to create the barcode. According to the book ”Business Research Methods”, the barcode became commonplace after a study by McKinsey persuaded Krogers to adopt it.
In the 1970s and 1980s, McKinsey helped European companies change their organizational structure to M-form (Multidivisional Form), which organizes the company into semi-autonomous divisions that function around a product, industry or customer, rather than a function or expertise.:208:110 In the 1980s, AT&T reduced investments in cell towers due to McKinsey's prediction that there would only be 900,000 cell phone subscribers by 2000. According to The Firm this was "laughably off the mark" from the 109 million cellular subscribers by 2000. At the time cell phones were bulky and expensive. The firm helped the Dutch government facilitate a turnaround for Hoogovens, now the world's largest steel company, through a $1 billion bankruptcy bailout. It also implemented a turnaround for the city of Glasgow, which had problems with unemployment and crime. McKinsey created the corporate structure for NationsBank, when it was still a small company known as North Carolina National Bank. McKinsey was hired by General Motors to do a large-scale re-organization to help it compete with Japanese auto-makers. The book The Firm said it was an "unmitigated disaster" because McKinsey focused on corporate structure, whereas GM needed to compete with Japanese automakers through manufacturing process improvement. A McKinsey consultant said GM didn't follow their advice.
A 2002 article in BusinessWeek said that a series of bankruptcies of McKinsey clients, such as Swissair, Kmart, and Global Crossing, in the 1990s raised questions as to whether McKinsey was responsible or had a lapse in judgement. McKinsey recommended that Swissair avoid high operating costs in its home country by developing partnerships with airlines based in other regions. In order to attract partners, Swissair acquired more than $1 billion in shares of other airlines, many of which were failing. This led to huge losses for Swissair. Enron was also a McKinsey client. McKinsey helped Enron shift from an oil and gas production company into an electric commodities trader, which led to significant growth in profits and revenues. According to The Independent, there was "no suggestion that McKinsey was complicit in the subsequent scandal, [but] critics say the arrogance of Enron's leaders is emblematic of the McKinsey culture.” The government did not investigate McKinsey, who said they did not provide advice on Enron's accounting, but some questioned whether McKinsey knew about Enron's accounting problems or ignored warning signs.
Former Financial Times journalist Duff McDonald, said McKinsey's confidentiality policy often prevents the public from becoming informed about the firm's work, except after it is exposed through lawsuits or investigations. 13,000 McKinsey documents were released as part of a lawsuit against Allstate, which showed that McKinsey recommended the company reduce payouts to insurance claimants by offering low settlements, delaying processing to wear out claimants through attrition, and fighting customers that protest in court. Allstate's profits doubled over ten years after adopting McKinsey's strategy, but it also led to lawsuits alleging they were cheating claimants out of legitimate insurance claims.
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- Home | Knowledge Network
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