Mckinsey and management consultants

[LongHaul]

I went to an over rated university that had Mckinsey come out and recruit from.  At the school I went to there were plenty of snobs and arrogant behavior.    One thing I remember clearly was going to a Mckinsey recruiting event and being amazed and the level of arrogance that they exhibited towards people.  Morgan Stanley and Goldman also came but I distinctly came away thinking - wow these Mckinsey guys are really arrogant.  Of course they also had the Mckinsey name which is/was the creme of the consulting world.

 

What is also interesting is that Jeff Skilling, Rajat Gupta and now Pearson are also Mckinsey alum.  I can't help but wonder if this is more than a coincidence and am now wondering if Mckinsey culture is partly to blame. 

 

Any thoughts or stories appreciated.

 

 

[Palantir]

Ajit Jain also came from there...if you have the opportunity to work there, do it. I bet some of the criticism might be envy.

[merkhet]

I went to an over rated university that had Mckinsey come out and recruit from.  At the school I went to there were plenty of snobs and arrogant behavior.    One thing I remember clearly was going to a Mckinsey recruiting event and being amazed and the level of arrogance that they exhibited towards people.  Morgan Stanley and Goldman also came but I distinctly came away thinking - wow these Mckinsey guys are really arrogant.  Of course they also had the Mckinsey name which is/was the creme of the consulting world.

 

What is also interesting is that Jeff Skilling, Rajat Gupta and now Pearson are also Mckinsey alum.  I can't help but wonder if this is more than a coincidence and am now wondering if Mckinsey culture is partly to blame. 

 

Any thoughts or stories appreciated.

 

It might play in, but I suspect that the bigger culprit might be just being the top dog at a company. You start to think your shit doesn't smell, and, for some, that leads to impropriety.

[vinod1]

If you want to understand some of the behavior read "Pedigree: How Elite Students Get Elite Jobs". The book itself is very good and would be useful if you have kids.

 

http://www.amazon.com/Pedigree-How-Elite-Students-Jobs/dp/0691155623

 

Vinod

[marazul]

I think Smartest Guys in the Room was an interesting read that touched on Mckinsey/consultants/Skilling. Besides the fact that some of these guys are cocky, etc... I realized they are good in the theory, the big picture, analyzing a business etc.. but puting those things to work and into action is difficult. Many of these guys don´t realize the difficulty of execution and the repercusions some of these "beneficial" actions can have. For example, Pearson thought probably the most rational thing to increase shareholder value was to increase prices of meds until the customer couldn´t take it anymore, reduce taxes and push the boundaries. But guess what? That draws attention and might end up destroying value. Skilling also had these big ideas of how he could make so much money trading or using complex structures, they sounded good in paper but the reality was different.

[oddballstocks]

I think Smartest Guys in the Room was an interesting read that touched on Mckinsey/consultants/Skilling. Besides the fact that some of these guys are cocky, etc... I realized they are good in the theory, the big picture, analyzing a business etc.. but puting those things to work and into action is difficult. Many of these guys don´t realize the difficulty of execution and the repercusions some of these "beneficial" actions can have. For example, Pearson thought probably the most rational thing to increase shareholder value was to increase prices of meds until the customer couldn´t take it anymore, reduce taxes and push the boundaries. But guess what? That draws attention and might end up destroying value. Skilling also had these big ideas of how he could make so much money trading or using complex structures, they sounded good in paper but the reality was different.

 

Agreed.  Had a discussion recently about entrepreneurs and one trait we discussed is how raw intelligence usually isn't necessary for success, but rather in inordinate amount of optimism is.  Where I live I can think of a number of extremely successful entrepreneurs who weren't brainiacs, they are average people, who are optimistic, execute and don't give up. 

 

It's unpopular on here, but there is probably a risk of being too educated.  Intelligence doesn't garner riches, if it did the Forbes 400 would be filled with professors.  Sometimes intelligence can be a hinderance because it lets a person see real risks better than the optimist entrepreneur who just charges forward and figures things out as they go.  This is probably why a lot of businesses fail too.

[Crip1]

Full disclosure, this is one story so should not be taken, in and of itself, as an incrimination of the whole company….and the names are omitted to protect the innocent.

Back in the late 70’s, McKinsey was brought in to consult a major corporation (Company A). After substantial amounts of time/effort, McKinsey said that Company A had a good business and was good at what they did, but that they needed to diversify to better ride out cyclical trends, etc. Company A, after paying McKinsey fees for services performed, did just that. Fast forward to mid-80’s, and Company A brought McKinsey back in for another consulting session. McKinsey, after thorough analysis, indicated that the businesses that they had brought in were all find and dandy, but recommended that Company A was spending too much time on all of these unrelated businesses and that it was better for them to focus on their “core competency”. To do so, Company A needed to sell these ancillary businesses. Company A, after paying McKinsey fees for services performed, did just that.

I currently work at one of the firms Company A sold off. My guess is that chutzpah (which is sometimes very similar to arrogance) on part of McKinsey in both instances helped seal the deal. If one walks around like they’re a bad-a**, some people will believe it. It’s part of the culture there; IMHO, because it works…people buy it…companies buy it.

This is not necessarily an incrimination of McKinsey; it’s more an observation on how the business world seeks activity over inactivity, even if the activity has marginal ROI. I’ve witnessed way too many presentations of division leaders speaking to initiatives for the coming year and not speaking to the success/ROI on the initiatives from the previous year. “We’re gonna do this and that” plays in the boardroom better than “That thing we worked on last year? Well, it went OK, but didn’t really amount to a hill of beans for the organization”. Management did not really need to go hog wild after the first consulting engagement, but they did. It was sexier and likely meant job security. Same thing with the second engagement…did ALL of the non-core firms needed to be sold? Likely not, but doing so meant more time, effort and job security.

This parallels investing. When the average person talks to their advisor, he/she does not want to hear “I’ve not bought or sold anything in the past 3 months, but I’ve looked at some companies and decided to pass, I’ve also read a lot of material to further enhance my cross-functional latticework of mental models”. The average Joe wants to hear “We bought this, sold that, shorted the other one and did a double-swap-bocephus-option on a new nanotech company”.  The chutzpah on part of the advisor, which can be seen as arrogance, helps sell the strategy.

Looks like I went on a bit of a tangent, there.  My apologies.

 

-Crip

[Jurgis]

Agreed.  Had a discussion recently about entrepreneurs and one trait we discussed is how raw intelligence usually isn't necessary for success, but rather in inordinate amount of optimism is.  Where I live I can think of a number of extremely successful entrepreneurs who weren't brainiacs, they are average people, who are optimistic, execute and don't give up. 

 

It's unpopular on here, but there is probably a risk of being too educated.  Intelligence doesn't garner riches, if it did the Forbes 400 would be filled with professors.  Sometimes intelligence can be a hinderance because it lets a person see real risks better than the optimist entrepreneur who just charges forward and figures things out as they go.  This is probably why a lot of businesses fail too.

 

I think we should be careful to diss intelligence. There are examples of superintelligent people who did not make great entrepreneurs and became professors or whatever - that's fine. There are examples of superintelligent people who became CEOs and blew up their companies. But there are also examples of superintelligent CEOs that are super successful entrepreneurs and/or investors: Buffett, Munger (in investing), Malone, Singleton (outsiders), Gates, Musk. Taking anecdotal info and saying that optimism is more important than intelligence is dangerous. In some cases the optimism and can-do attitude will achieve huge success, in other cases they won't. I'd rather see an analytical study that shows correlations across a big pool of business leaders.

 

Edit: btw, superintelligence+optimism/can-do does not guarantee success or failure either. Most of the positive and negative examples above had both.

 

Edit2: arrogance + superintelligence does not guarantee success or failure either. In terms of success, I'd say Larry Ellison is an example.

[constructive]

I find the massive employee turnover at the top management consultancies and investment banks confusing. Instead of looking for top students who want to get a name on their CV and then move on to the next job, wouldn't it make more sense to find people who really want to work in that field and help them build a long term career, reducing the costs of retraining all new staff every two years?

 

I talked to a careers advisor in my MBA program yesterday and she suggested that I would be a strong candidate in consulting, even though I have no interest in it and want to work in asset management.

 

We also had an equity research firm give a recruitment presentation, in which they admitted that working 60 hours a week in equity research was not anyone's goal. Their pitch was that working there for 3 years would prepare us for a better job somewhere else.

[LongHaul]

These are great posts. 

 

I have 2 smart friends who are straight shooters who have worked at large companies for many years.  They both independently told me the same thing at two different points.  The mgmt consultants come in, interview a lot of employees, package what they learn and regurgitate all dressed up to mgmt.  They use a lot of BS terms and they both now say as soon as they hear consultant - they think bullshit.  But they are really smooth talkers - that is essentially their job.  I have to wonder if these consultants spewing all this BS eventually start to believe it themselves.  It sure seems like it.  I have also noticed that many capable CEO's don't use them or minimize them - Buffett and Munger and others. 

 

I have become more wary of CEO's from consulting backgrounds because some seem so full of BS it makes me want to throw up.  I think it is good to be skeptical of them.

 

The other thing that may be going on at Mckinsey is a culture of extreme arrogance.  Culture is a very powerful "force" that can and will subtley affect us all. 

 

 

 

 

 

[LR1400]

Smart people paid to tell you the obvious.

 

They have to string management along in order to extend the "engagement".

 

I learned a lot of basic business analysis by studying their materials and books. Learned more studying Buffett, Munger, and the outsider ceos. Learn more reading BRK shareholder letters because there is no bullshit jargon and the advice is tangible and easy to put your hands on.

 

For example: studying Buffett would keep you out of businesses with poor economic models. Not many consultants would advise you that your industry sucks and the economic model of it is doomed to fail, some may, but not many. If they did that there would be little to no follow up engagements and fees.

[Jurgis]

Not many consultants would advise you that your industry sucks and the economic model of it is doomed to fail, some may, but not many.

 

Possibly OT.

 

Let's say you are CEO of a company with weak economic fundamentals. You hire a management consultant and they tell you "your industry sucks". Two questions:

 

1. Is this really useful to you? How did you become a CEO and not know your industry fundamentals?

2. What would you do differently after learning this? Suggest to the board to liquidate the company? Why? The fact that company makes poor returns on capital might be a concern for shareholders, but it's really their decision to invest or not to invest into the company. As a company CEO you have more stakeholders than just shareholders (although this is anathema to some of the people on this board  8) ). The company might make economic sense even though it does not make great returns to shareholders. If we took opposite view, you'd probably have to liquidate over 80% of companies out there.

 

Sure, some companies might benefit from shifting from crappy industry to one that is a bit better - like currently Alcoa is doing. But there will continue to be need for retailers, oil&gas E&Ps, etc, even though majority of them make crappy returns.

 

I guess as a CEO I'd ultimately prefer a consultant who says "your industry sucks, but assuming you want to stay with it, you can do X, Y, Z.". ;)

[Hielko]

They actually do advise companies to shut down. In Red Notice (fascinating book, highly recommended) the author starts out as a management consultant, and he has to advise a Polish bus company that was a former state-run business. He describes how he tries to find alternatives to shutting down the company after he gets to know the people working there (who all seem to think he is the hero that will rescue the company). His supervisor deletes all the alternatives and the official recommendation is that they wind down business (and that was probably also the correct advice). In the end that doesn't happen, and the company is subsidized by the state. I'm guessing that business doesn't exist anymore.

[SharperDingaan]

A few things to keep in mind.

 

Consultants. They are simply insurance policies; the cost is the premium. You have a great idea, you think it will work, but its high risk. Bring in a consultant, feed them enough information to recommend the idea, & implement. If it works you’re a hero; if it fails it’s the consultant – not you. Repeat as necessary, & live for a very long time.

 

Intelligence. Many different types (brains, practical, political, feral, people, EQ, etc.) but each useless if there’s no drive. Hence all drive, few smarts, often wins out; we call it persistence.

 

Marketing. I’ve studied it, I know everything, hail me as guru; no possibility that the kool-aid was laced, or that the mob is wrong. The 1% publicly embrace, privately bet against; & only have to be right once. We call it anti-fragility.

 

SD

   

 

[bookie71]

Remember the old definition of an expert. ex = has been and spurt = drip under pressure    plus they are usually from out of town.

 

The first CPA firm I worked for in the mid 1960's was starting to get into management consulting. The audit staff was told to look for areas that our clients need help with, BUT under no circumstances were we to tell them the simple answer, we were to refer to the consulting group.

 

 

[Drake]

I find the massive employee turnover at the top management consultancies and investment banks confusing. Instead of looking for top students who want to get a name on their CV and then move on to the next job, wouldn't it make more sense to find people who really want to work in that field and help them build a long term career, reducing the costs of retraining all new staff every two years?

 

Massive employee turnover is an essential part of the business models of top consultancy firms. They need the best, they need them 24/7, and hence they need to offer a fast career track and high income raises.

 

About the career track offered: I don't know how McK calls its career levels, but the general principle in the consulting industry is this: you start as a consultant. After a brief period of time, e.g. after one or two years, you are promoted to senior consultant. After a brief period of time, e.g. two to three years, you are promoted to manager, and after another fixed period of time, say 3 to 5 years, you can become partner. Every year that you stay onboard, your wage is raised by a considerable amount (the consulting industry's standard for annual wage increases is 15%).

 

However, unless business grows at the same speed as promotions and wages, on each career level only a fraction of employees than on the next lower career level is required. As McK is a mature business in a saturated market, they cannot grow exponentially. Hence, the only way for McK to offer this kind of career track is to have high employee turnover (the industry term for this is "grow or go").

 

This shows why a high employee turnover is essential to their business model: McK cannot get the kind of employees that they need for their business model to work without the kind of career track described above, but they cannot offer that kind of career track without high employee turnover. 

 

Apart from this, a positive side-effect of the high employee turnover is that it builds an alumni network in the management of a lot of industries which helps them grow their business...