Is McKinsey and Co. The Root of All Evil? (2011)(ritholtz.com)
ritholtz.com
Is McKinsey and Co. The Root of All Evil? (2011)
https://ritholtz.com/2011/03/is-mckinsey-co-the-root-of-all-evil/
56 comments
Yeah, I rarely see consultants give much advice beyond what the leadership already said they wanted to do - albeit not often directly.
What seems to commonly happen is a consultant comes in, listens to leadership, and then regurgitates what leadership already really wants to do. This lets leadership absolve some of the responsibility when it fails ("The consultant told us to do X").
And it makes sense because who knows the business better than leadership? The consultants can't really do much else other than take their cues from leadership. What routinely surprises me is just how much companies are willing to pay for this service.
What seems to commonly happen is a consultant comes in, listens to leadership, and then regurgitates what leadership already really wants to do. This lets leadership absolve some of the responsibility when it fails ("The consultant told us to do X").
And it makes sense because who knows the business better than leadership? The consultants can't really do much else other than take their cues from leadership. What routinely surprises me is just how much companies are willing to pay for this service.
> And it makes sense because who knows the business better than leadership? The consultants can't really do much else other than take their cues from leadership. What routinely surprises me is just how much companies are willing to pay for this service.
The company pays but the leaders benefit. You can charge a lot when it's other people's money.
The company pays but the leaders benefit. You can charge a lot when it's other people's money.
Wow. I wonder what conditions and experiences lead executives to end up that perspective on hiring consultants. Naive me took them at face value: idea generators for companies whose executives suspect untapped potential.
Once you read this utterly true and appalling state of affairs it changes your frustration to disillusionment around corporate leadership.
Large consultancies have subverted many large organisations with a revolving door hiring system - jump into a consultancy, jump back out and bring your consultancy in to fix the company, years later jump back out to the consultancy in a senior role that's low effort as a reward.
Before I worked with consultants directly at large banks I thought they must have all been geniuses but that's not the case, they're merely people from good universities who follow the instructions of the more senior people inside the consultancy rather than independent thinking. Basically they're bodies.
Large consultancies have subverted many large organisations with a revolving door hiring system - jump into a consultancy, jump back out and bring your consultancy in to fix the company, years later jump back out to the consultancy in a senior role that's low effort as a reward.
Before I worked with consultants directly at large banks I thought they must have all been geniuses but that's not the case, they're merely people from good universities who follow the instructions of the more senior people inside the consultancy rather than independent thinking. Basically they're bodies.
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At least from a VC perspective they are seen as the second coming of Christ.
(2011)
The headline at least is as actual today as it was 11 years ago. Perhaps even more.
Part of the coreutils anyway.
For anyone interested in similar topics, I would recommend reading "Confessions of an Economic Hit Man"
McKinsey is merely a byproduct, if you want to get to the root you have to analyze Capitalism, the system out of which McKinsey-like entities emerged as the best fit for its natural selection.
I generally agree with this takeaway. The same can be said for all (big 5) management consultancies.
On a related but unrelated note, the structured McKinsey methods of thinking and analysis have been my go-to for decades now.
Notable frameworks I recommend looking into are: The Pyramid Principle, MECE, 7s, SPC, to mention a few.
On a related but unrelated note, the structured McKinsey methods of thinking and analysis have been my go-to for decades now.
Notable frameworks I recommend looking into are: The Pyramid Principle, MECE, 7s, SPC, to mention a few.
^ this ^
It's up to the client to (choose to) implement the guidance, and, as a consequence, to realize the consequences, good, bad, or a combination of both.
It's up to the client to (choose to) implement the guidance, and, as a consequence, to realize the consequences, good, bad, or a combination of both.
It is, but it's so much more convenient when an external bunch of talking suits with an outrageous hourly-rate tell you what you already know but are afraid to implement.
This is exactly the thing
Capitalism is the system out of which these problems have sprung. People keep shouting about "real" or "pure" capitalism being better but that's all a lie spread by the capital owners through their think-tanks. Its propaganda
If we organize corporations to be owned by the workers instead of shareholders, the few with real capital, then the interest of the corporation will shift to that of the workers instead of driving profits to shareholders. A corporation with the interest of workers won't hire consultants like McKinsey
Capitalism is the system out of which these problems have sprung. People keep shouting about "real" or "pure" capitalism being better but that's all a lie spread by the capital owners through their think-tanks. Its propaganda
If we organize corporations to be owned by the workers instead of shareholders, the few with real capital, then the interest of the corporation will shift to that of the workers instead of driving profits to shareholders. A corporation with the interest of workers won't hire consultants like McKinsey
There's always going to be "management", especially if ownership is diffuse. Where there is management, there will be management consultants (of one style or another).
Decisions will no longer be hidden if the workers all have a say in decision making, that changes the information power asymmetry to being more symmetrical and gives people the power to speak out to regulators.
If managers start hiding things, workers could easily remove the managers. We also should remember that managers are workers too, almost never are they the capital owners
If managers start hiding things, workers could easily remove the managers. We also should remember that managers are workers too, almost never are they the capital owners
> There's always going to be "management",
Fuck crypto, but the concept of a DAO may change this.
Fuck crypto, but the concept of a DAO may change this.
I’m not convinced that worker ownership is necessarily better either, not in a global sense at least, not when we emit into the same beleaguered environment.
Consider a worker-owned coal mining operation. It will have the same self-preservation drive that works to the detriment of all the rest of us.
Consider a worker-owned coal mining operation. It will have the same self-preservation drive that works to the detriment of all the rest of us.
I understand that, but when the decisions are made by more people there is a greater chance of some of them speaking up and saying "hey, maybe we shouldn't destroy the environment" instead of when decisions are made by a few behind closed doors with consultants being paid to provide cover
It also allows the workers to have the knowledge of what's going on, in the case that the organization does decide to destroy the environment we then have more people who know the facts behind the decisions and can speak out to regulators
It also allows the workers to have the knowledge of what's going on, in the case that the organization does decide to destroy the environment we then have more people who know the facts behind the decisions and can speak out to regulators
The big issue is "stakeholder mismatch".
A worker-owned coal mine has workers who are going to say "keep the place open forever to pay our rent", but also workers who will say "I'm dying of black lung" or "the river my kids like to swim in is purple from runoff" which will help moderate the decision making process. Maybe they stay open, but do a better job of managing emissions, because they're accountable to people who are directly impacted. Maybe they are more directly aware that there's N years of viability left in the coal business and start looking to bootstrap alternatives sooner.
When the stakeholders are predominantly outside investors, there's no reason for them to ask about mitigration or the long term. If they realize that coal is dead in ten years, they personally aren't impacted, they just have to hype the price long enough to sell the asset to some other sucker. Their kids aren't swimming in waste products, so go ahead, funnel it directly into the river.
I always figured the strongest mix was to find a way to manage that represented the worker stakeholders and the consumer stakeholders (the ones who are going to walk away after you shrinkflated the product to death). Solve their needs, and capital will get its money back.
A worker-owned coal mine has workers who are going to say "keep the place open forever to pay our rent", but also workers who will say "I'm dying of black lung" or "the river my kids like to swim in is purple from runoff" which will help moderate the decision making process. Maybe they stay open, but do a better job of managing emissions, because they're accountable to people who are directly impacted. Maybe they are more directly aware that there's N years of viability left in the coal business and start looking to bootstrap alternatives sooner.
When the stakeholders are predominantly outside investors, there's no reason for them to ask about mitigration or the long term. If they realize that coal is dead in ten years, they personally aren't impacted, they just have to hype the price long enough to sell the asset to some other sucker. Their kids aren't swimming in waste products, so go ahead, funnel it directly into the river.
I always figured the strongest mix was to find a way to manage that represented the worker stakeholders and the consumer stakeholders (the ones who are going to walk away after you shrinkflated the product to death). Solve their needs, and capital will get its money back.
Fair point. At least some kinds of awful corporate decision-making would surely be much less likely under worker ownership.
For example, 3M and PFAS contamination. It’s a stretch to imagine workers local to the factories and very directly bearing the brunt of it, would go along with it.
For example, 3M and PFAS contamination. It’s a stretch to imagine workers local to the factories and very directly bearing the brunt of it, would go along with it.
> If we organize corporations to be owned by the workers instead of shareholders
That model isn't a good solution either - it would require for workers to "buy in" into the cooperative in order to have a job. Most cooperatives are founded by a group of people pooling together their individual assets to start operations.
That model isn't a good solution either - it would require for workers to "buy in" into the cooperative in order to have a job. Most cooperatives are founded by a group of people pooling together their individual assets to start operations.
Workers already "buy in" with their labor
> A corporation with the interest of workers won't hire consultants like McKinsey
Consultancy might still exist as it provides value, it's just that some kind of suggestions would be completely unacceptable if your priorities are worker welfare and prosperity and you are not allowed to externalize costs on society.
Consultancy might still exist as it provides value, it's just that some kind of suggestions would be completely unacceptable if your priorities are worker welfare and prosperity and you are not allowed to externalize costs on society.
That's a good point. My assumption is that with a more democratic structure governing corporation decisions, those decisions will likely be less aligned with the ideology of "profit at the expense of all else" which can lead to some of the projects that McKinsey has worked on. Of course its not foolproof and the organizations could still make those decisions, but I think it would still mitigate a good portion which would be a step in the right direction.
I think that is too simplistic. I believe the "McKinsey problem" is that of higher management (including the board) whos interest do not align with the owners or workers.
This is the result of centralization of power, and nothing more.
People are people, regardless of what faction you've been brainwashed to believe supports the greater good
People are people, regardless of what faction you've been brainwashed to believe supports the greater good
Capitalism, when left unregulated, allows and actively encourages consolidation and centralization of corporate power in the form of monopolies and oligopolies.
Changing the structure and incentives can alter that, it's a systemic effect
Changing the structure and incentives can alter that, it's a systemic effect
Capitalism existed for centuries before the McKinsey, which is an outgrowth of the 20th century movement of “scientific management.”
Not as such it did not.
https://books.google.com/ngrams/graph?content=capitalism&yea...
https://books.google.com/ngrams/graph?content=capitalism&yea...
> _Indeed, where ever there has been a financial disaster in the world, if you look around, somewhere in the background, McKinsey & Co. is nearby._
It seems that selection bias is something journalists really struggle with...
It seems that selection bias is something journalists really struggle with...
Speaking as someone with a journalism degree (before pursuing more substantive fields), I can assert with great confidence that journalists are trained to write, and little else. The result is a skilled rhetorician with very little hard knowledge, and little ability to reason from first principles. Without these, one has few means of evaluating the merit of any information or story.
Notable exceptions to this rule exist, but they are rare. One should be exceedingly skeptical of journalism absent expertise.
Notable exceptions to this rule exist, but they are rare. One should be exceedingly skeptical of journalism absent expertise.
Is there any chance to get a comparison between companies who use McKinsey and ones that don't? Compare stock prices, profitability, public image, long term prospects ...
This could become a nice Rorschach test, where eveybody can come to different conclusions based on which metrics they pick as important.
This could become a nice Rorschach test, where eveybody can come to different conclusions based on which metrics they pick as important.
I’d love to hate on McKinsey, but this piece is just anger with a few cherry picks. It’s a bad habit to take this seriously.
It doesn’t even address the simplest explanation for most of this: big companies that are doing bad contact McKinsey to try and change strategies, so of course many bankruptcies follow hiring them. It’ll be like blaming the fire department for fire deaths because the trucks always seem to be near a fire.
It doesn’t even address the simplest explanation for most of this: big companies that are doing bad contact McKinsey to try and change strategies, so of course many bankruptcies follow hiring them. It’ll be like blaming the fire department for fire deaths because the trucks always seem to be near a fire.
The author doesn't do a great job making the point, but there's more to it than that. In many cases, McKinsey encouraged strategies that harmed either the company, society, or both:
- Shady accounting at Enron
- Aggressive denial of claims at Allstate
- Aggressive marketing of opioids at Purdue Pharma
These strategies were not just one-off misfires, but deeply involved McKinsey's senior leadership over multiple years.
EDIT: after poking around for more info on the Enron-McKinsey relationship, I'm not sure what is known with certainty other than that Jeffrey Skilling, CEO during the scandal, was a former McKinsey consultant, and McKinsey was doing stuff with Enron the whole time. McKinsey appears to have successfully convinced everyone that they weren't involved in the accounting scandal.
- Shady accounting at Enron
- Aggressive denial of claims at Allstate
- Aggressive marketing of opioids at Purdue Pharma
These strategies were not just one-off misfires, but deeply involved McKinsey's senior leadership over multiple years.
EDIT: after poking around for more info on the Enron-McKinsey relationship, I'm not sure what is known with certainty other than that Jeffrey Skilling, CEO during the scandal, was a former McKinsey consultant, and McKinsey was doing stuff with Enron the whole time. McKinsey appears to have successfully convinced everyone that they weren't involved in the accounting scandal.
That's completely consistent with the GP's point that companies who are struggling or companies that are taking big decisions tend to hire McKinsey to do some reports for them. That applies equally to some really successful clients whose successes McKinsey deserves essentially no credit for.
The company that actually advised Enron on how to do its false accounts, Arthur Andersen, was broken up. McKinsey's documented involvement was fluffy stuff on management culture and writing press releases citing Enron as a success story which look pretty funny in hindsight.
The company that actually advised Enron on how to do its false accounts, Arthur Andersen, was broken up. McKinsey's documented involvement was fluffy stuff on management culture and writing press releases citing Enron as a success story which look pretty funny in hindsight.
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Well said. It’s almost a meme at this point: HN commentor takes a reductive stance that sounds clever in theory, but collapses when confronted with the actual factual circumstances. Repeat ad nauseam with no gains in collective self-awareness.
My little sister worked there for a while. I think McKinsey worked on both Obama’s and McCain’s campaign at the same time. Talk about a heads I win / tails I win situation heh.
Heads I win / tails you lose is the phrase I believe :)
I like heads I win / tails I win as one notch up from the usual. Heads i win / tails you lose could imply that we both lost. However, heads I win / tails I win seems more appropriate for McKinsey and the other truly ruthless (or singular focused) orgs out there.
McKinsey’s biggest structural issue is extremely decentralized leadership. Senior partners are not accountable to anyone and there’s limited ethics oversight.
Combine that with working with a majority of F500s and governments, and it’s a high risk situation.
Great initial job training though, so no limit to talent pipeline when they get college grads for 2 years.
Combine that with working with a majority of F500s and governments, and it’s a high risk situation.
Great initial job training though, so no limit to talent pipeline when they get college grads for 2 years.
thats the basics of how limited partnerships work
Eh I must not have made my point well. Most similar partnerships (e.g., Goldman, Bain) have more structural oversight
Is there somewhere I can go to understand why McKinsey has almost cult-like status among large corporates?
Some of the stupidest decisions I've ever witnessed has been driven by multi-million dollar strategies from McKinsey. At a place I worked previously McKinsey advised in-housing software development to spark innovation and digital transformation. Then three years later in 2020 to it was advised that software development be outsourced to cut costs.
Obviously this was a move of utter insanity but for our executives it didn't matter. If McKinsey suggested it, we did it. There was literally no debate on these decisions no matter how hard we tried or how obvious of a mistake it was.
During my time at said company I was working on an innovation project which imo would have been fairly revolutionary for the company's future. For about a year we gathered input across the business and it was understood by every team we spoke to that this technology would be central to the continued success of the company. Importantly, it was understood the importance of us owning the IP and being market leaders in this technology so we could use it as leverage.
The cost of the project was estimated at around £100,000 - which was a fraction of what we were being billed by McKinsey every year. Encouraged by the the overwhelming support we got from every segment of the business and the relatively affordable development costs, we pitched our plan to the executive team.
A couple of weeks later we learnt that the executives deemed the project too expensive and sent us several companies who were suppliers of McKinsey who had built similar solutions. We tried to explain to executive team that the tech we wanted to build didn't yet exist and these solutions from McKinsey's suppliers were no where near ready for rollout, and in most cases these suppliers were actively lying about their tech. But it was an impossible battle. In their eyes we knew nothing despite months of research and McKinsey's word may as well have been gospel.
I left the company shortly after this and have heard things have continued to go down hill. I guess I never understood why the executive team seemed to just defer all of their executive decision making to McKinsey in the first place, especially given the lack of success and costs. Why was our own executive team not better placed to form corporate strategy? Is it common for corporate executive teams to just serve as puppets to large consultancy firms like McKinsey?
The relationship said company had with McKinsey was unlike any I've ever seen before. In my experience suppliers are normally on the backfoot, not calling the shots, yet this doesn't seem to be the case for McKinsey. It seems many corporates are more than willing to follow McKinsey over a cliff and I have no idea why.
Some of the stupidest decisions I've ever witnessed has been driven by multi-million dollar strategies from McKinsey. At a place I worked previously McKinsey advised in-housing software development to spark innovation and digital transformation. Then three years later in 2020 to it was advised that software development be outsourced to cut costs.
Obviously this was a move of utter insanity but for our executives it didn't matter. If McKinsey suggested it, we did it. There was literally no debate on these decisions no matter how hard we tried or how obvious of a mistake it was.
During my time at said company I was working on an innovation project which imo would have been fairly revolutionary for the company's future. For about a year we gathered input across the business and it was understood by every team we spoke to that this technology would be central to the continued success of the company. Importantly, it was understood the importance of us owning the IP and being market leaders in this technology so we could use it as leverage.
The cost of the project was estimated at around £100,000 - which was a fraction of what we were being billed by McKinsey every year. Encouraged by the the overwhelming support we got from every segment of the business and the relatively affordable development costs, we pitched our plan to the executive team.
A couple of weeks later we learnt that the executives deemed the project too expensive and sent us several companies who were suppliers of McKinsey who had built similar solutions. We tried to explain to executive team that the tech we wanted to build didn't yet exist and these solutions from McKinsey's suppliers were no where near ready for rollout, and in most cases these suppliers were actively lying about their tech. But it was an impossible battle. In their eyes we knew nothing despite months of research and McKinsey's word may as well have been gospel.
I left the company shortly after this and have heard things have continued to go down hill. I guess I never understood why the executive team seemed to just defer all of their executive decision making to McKinsey in the first place, especially given the lack of success and costs. Why was our own executive team not better placed to form corporate strategy? Is it common for corporate executive teams to just serve as puppets to large consultancy firms like McKinsey?
The relationship said company had with McKinsey was unlike any I've ever seen before. In my experience suppliers are normally on the backfoot, not calling the shots, yet this doesn't seem to be the case for McKinsey. It seems many corporates are more than willing to follow McKinsey over a cliff and I have no idea why.
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> Is there somewhere I can go to understand why McKinsey has almost cult-like status among large corporates?
Look into how many CEOs and executives of large corporations are former McKinsey partners.
Look into how many CEOs and executives of large corporations are former McKinsey partners.
I'm not sure any of this is specific to McKinsey.
IMHO the current system supports a whole layer of consultants, MBAs, CEOs, and financiers who are either destroying the 'real' economy, or at best sucking all the juice out of it for their own gain.
Late capitalism, financialization, feral capitalism, managerialism. I've seen several terms thrown around, but the essence seems to be something like the profits come from owning and/or tapping into the flowing money; the actual work involved in creating those flows is virtually irrelevant and certainly under-rewarded.
IMHO the current system supports a whole layer of consultants, MBAs, CEOs, and financiers who are either destroying the 'real' economy, or at best sucking all the juice out of it for their own gain.
Late capitalism, financialization, feral capitalism, managerialism. I've seen several terms thrown around, but the essence seems to be something like the profits come from owning and/or tapping into the flowing money; the actual work involved in creating those flows is virtually irrelevant and certainly under-rewarded.
All management consultants do in my experience is give an impression of authority and rigor to a decision management want to take. Want to relocate the hq, get a big consultant in to create a justification for it. Then you can say " look pwc or whoever, agree with us". Giving your dubious decision the respectablilty and authority it needs.
The real damage caused by McKinsey is its promotion of a certain kind of capitalism that prioritizes short term profit and optimization over long term stability and innovation.
Both of these are nice to have, but in McKinsey influenced “MBAized” businesses, optimization is often almost THE end goal. This leads to all sorts of situations innovation centers get gutted and long term bets are eschewed in favor of immediate profits.
Both of these are nice to have, but in McKinsey influenced “MBAized” businesses, optimization is often almost THE end goal. This leads to all sorts of situations innovation centers get gutted and long term bets are eschewed in favor of immediate profits.
Ah, 2011. I had thought that Blackrock were the new Bond villains.
Even from this article you can see they're doing an excellent job.
If I were an executive I would absolutely hire them after reading this article since I can just use them to enact unpopular changes I've always wanted, and wouldn't be blamed if it goes south.