Magazine Connection Make KoreKalibre your homepage Get a Fre

S EUREKA QUESTIONS IDEAS MIND VENTURE HISTORY NATION

The Symptoms of Parkinson’s Cars That Run On Sugar Entangled Photons: Building Blocks for Supercomputers Self-Cleaning Nanotech Clothes 3-D E
ave Wide Applications

246 Community Center

Top of Form
> McKinsey Publish your Article

Username

McKinsey Password
login e
Cull pioneering ideas in management for your firm from McKinsey & Co.
1 ht

0 1
MCKINSEY & CO:
THE HIGH PRIEST OF CONSULTING Current Issue
With its intellectual firepower, portfolio of blue-chip clients and global Remember me
Subscribe
Lost Password? No accou
reach, McKinsey & Co. has defined the business of management Now!
consulting since its inception. In this tribute to Al Chandler, Innovate Bottom of Form
presents the story of McKinsey which reached new heights of success
as it expanded globally. Al Chandler discovered the M-form which had
become the dominant force in American business. He also identified the
role of management consultancy firms like McKinsey as a key element
in the diffusion of the M-form to other parts of the world. post a comment (0)
QUOTE OF THE DAY
e-mail this story

Life science is analogou

industry - Josh Boger, C
 Film industry relies on blockbusters
requires large budgets and longer
development. Such characteristics
high returns. For instance, New Lin
over 200 movies in development, o
may go into production, others may
around”. This looks much like phar
that may have several products in
hold, and others considered for out
question Josh raises is whether a s
company needs to be the innovato
distributor of products? In some ca
to partner with giants like Merck to
obvious.” The last comment, albeit apocryphal, has bee
distribution. In other instances whe
McKinsey’s controversial marketing
consultation on the
is easier, Joshrestructuri
is taking
way himself. Further using the film
But whether you admire “The Firm”, as it is called in hig
not hesitate to be just the creator o
Company simply can’t bethe ignored.
giganticEighty-one years to
task of distribution afts
Jackson was rewarded handsomel
estimated annual revenue of over $3.8 billion. It is one
blockbuster while leaving the heav
7,500 consultants in 84 offices across 45 countries. Tho
to New Line Cinema. Similarly, Jos
functions as a partnershiphandsomely
in all important respects.
rewarded The
for his creat
government agencies andwonder recently on
foundations his acompany
phalanxVerte
of
for a preclinical product by Merck w
percent of the Fortune 1000. Indeed, 147 of the world’s
deferred over the next 2 years to b
are 80 of the 120 premieringlobal financial services instit
royalties.
and 15 of the 22 biggest health care and pharmaceutica
Even casual meetings with a McKinsey consultant can
at McKinsey are Ivy League and Oxbridge alumni with t
knowledge and sharp, incisive, specialized skills in indu
McKinsey’s consultants and the unwavering client-drive
managing director Rajat Gupta being a particularly goo
ahead of rivals such as The Boston Consulting Group,
Company. Current Worldwide Managing Director Ian D
understated, bright, diligent and knowledgeable. And so
skills to sell to its clients: knowledge, analysis and visio
and incisiveness, are as precious to McKinsey as fuel t
SOLID OLID FOUNDATION
The McKinsey mission statement is succinct and embo
distinctive, lasting and substantial improvements in perf
attracts, develops, excites and retains exceptional peop
and farsightedness of Mac, as he was called by admirers and detractors alike, for management theory
was then still in its infancy. James McKinsey believed that management consultants needed to go beyond
providing aid to ailing companies: they also needed to offer assistance to healthy companies to
restructure themselves to suit the ever-changing environment: corporate, social, legislative and
technological.
The arrival of Marvin Bower in 1933 provided James McKinsey not only with a fellow visionary but
injected the consulting industry with a professionalism that would shape it for the rest of the century.
Bower, known as the founder of modern management consulting, held an MBA from Harvard. He started
his professional career at a law firm – Jones, Day, Reavis & Pogue – in the thick of the Great Depression.
Regularly assigned to bondholder committees that had taken control of failing companies, Bower found
that though legal assistance and financial advice were being offered to these companies there was a
lacuna in basic management consulting. Recounting his early days, he once said: “No one asked why
these companies had failed – or how much earning power the new bonds could support … I saw the need
for a professional firm that could give managing advice the way Jones Day gave legal advice.”
A chance meeting with James McKinsey gave Bower the opportunity to turn his vision into reality and to
start a practice in a profession that at that point did not exist. In a few years he had redefined what was
then called industrial or management engineering as management consultancy. The only area of conflict
the two visionaries had was Bower’s insistence that their firm should not audit the books of a business to
which it was consulting. McKinsey disagreed and went on to merge his firm with a specialized accounting
firm. Bower remarkably had anticipated by more than half-a-century the division of labor that the
American Congress would insist on in the Sarbanes- Oxley Act of 2002.
When McKinsey died prematurely in 1937, Bower engineered the formal split of the firm. McKinsey &
Company was now divided between the Chicago office headed by Tom Kearney and the New York office
headed by Bower. A decade later Bower bought the exclusive rights to use the McKinsey name and went
on to create an industry.
FATHER ATHER OF CONSULTING
From the start Bower laid his profession’s roots in notions of integrity, ethics and unyielding loyalty to
customers. Corporate folklore insists that Howard Hughes was so eager to hire Bower that he summoned
him, in true Hughes style, after midnight to his desert hideaway on three different occasions. All three
times Bower refused to take on the assignment, insisting that it was both unethical and unprofessional to
present a report that would not be acted on.
The Bible according to Bower consisted of a few core principles:

1- Client interests must be placed before those of the firm.

2- Engagements should only be undertaken when the value to the client was expected to exceed the
firm’s fees.
3- The firm’s ownership should be restricted to active partners.
4- Firm members must be professionals, trained and motivated to do outstanding work and make a
permanent career with the firm.
Industry insiders insist that whenever the firm has
strayed away from these core principles, it has
got its management fingers singed as in the
Enron (formerly one of the company’s biggest
clients) debacle that was scripted by a former
McKinsey partner, Jeffrey Skilling. Other failures
were the Swissair and Sabena assignments that
went awry. McKinsey was also credited with
proffering ill advice to the British railway company Railtrack to reduce spending on
infrastructure and return cash to shareholders. Another recommendation that proved ill-fated
was the advice given to AT&T that cellular phones would be a niche market.
Though these disasters cannot be discounted, McKinsey remains the gold standard by which success in
the consulting industry is benchmarked. It is a reputation that has been built on a long history of providing
strategic advice to the world’s largest corporations. From blueriband enterprises like General Motors,
PepsiCo, Ford Motor Company and American Express to global organizations like the Roman Catholic
Church and the Bank of England, most large international institutions have at one time or another profited
from McKinsey’s calibrated advice. Today, McKinsey groups its practices into the areas of business
technology, corporate finance, marketing and sales, operations, organization and strategy. It is a tightly
run ship but with a great deal of built-in decentralization that offers individual consultants both flexibility
and motivation.
INTERNATIONAL EXPANSION
Bower first proposed that the firm go international in 1953. In 1954, McKinsey & Co. had been asked to
undertake an organizational study for IBM World Trade, exposing the firm’s consultants to the
management challenges of being a multinational player in a still fairly insular world. Soon after, it was
asked to consult for Shell’s operating company in Venezuela, an assignment that led to a study of the
entire organization with its head offices in London and The Hague. Both experiences convinced Bower of
the need to spread the company’s wings but it was only in 1959 that McKinsey opened its first
international office in London. The decision was catalyzed by the emergence of an increasingly integrated
world economy. And yet many of the company’s partners baulked at Bower’s insistence on international
expansion.
McKinsey in the mid-1950s, though a firm to be reckoned with, had just five offices in the U.S., a mere
dozen partners and around 100 professionals. But Bower as usual had his finger placed firmly on the
pulse of the economy and the global expansion was to prove successful from the start. During World War
II, the company had helped major companies convert their production facilities to support U.S. troops.
Now in the period of internationalism, as American firms began to open offices, factories and research
facilities in other nations, McKinsey knew that it would have to follow in order to retain traction. By 1966,
the London office of McKinsey was second only to the New York office in revenues and attracted such
high-profile clients as the BBC, Imperial Chemical Industries and the Bank of England.
McKinsey now marched inexorably through Europe, opening a branch in Geneva in 1961, followed by
Paris, Amsterdam and Dusseldorf a few years later. McKinsey took with it the legendary M-form, the
multidivisional corporate structure that had been used so effectively in the management of firms like Shell,
General Motors and Du Pont. Strategists believed that the M-form was the dominant organizational
document in American business. Companies in Britain and continental Europe, seeing America as the
new Mecca of business, gratefully imbibed it. In fact, it is estimated that by 1970, half of Germany’s
largest companies had adopted the M-form. From consulting with Geigy, the chemical and
pharmaceutical firm, and the entire Dutch banking sector to advising Unilever, the Anglo-Dutch consumer
products company, the way forward for European business was apparently the McKinsey way.
Besides opening its European offices, McKinsey also established a branch in Melbourne, Australia, in
1962 and now, a little over four decades later, has 84 offices in 45 countries. As Bower once reminisced
on McKinsey’s international expansion: “Our clients needed to think globally and to service them properly
we needed to think and understand more than America … I felt that if we looked at it from the standpoint
of the clients, the American companies would want us to help them move into Europe… I felt that just as
we had become a national firm, so we must become an international firm.”
ONE FIRM
McKinsey has always been committed to its “one firm” concept. This mandates that only by remaining a
single organization (rather than a confederation of offices) can it offer its clients the most professional
service. In fact, Bower was so fixated on this concept that he stretched it to include a blanket uniformity in
the company that extended from the physical décor of its offices and the dress code of its employees to
the format of its reports. In a 1964 Partners’ Conference he stated: “Now our multinational firm has one
very remarkable characteristic and that is that it is one firm. It’s not only one firm in terms of purposes and
attitudes and philosophy; it’s one firm in terms of legal entity. We are one firm in attitude, and I believe this
is a very remarkable development and a great element of strength.”
Bower was Managing Director from 1950 to 1967 when
annual revenue increased tenfold from $2 million to $20
million. His carefully chosen successor, Gil Clee,
unfortunately died of cancer shortly after taking over the
reigns and his successor, Chester Lee Walton, was replaced
by Alonzo McDonald in 1973. Bower formally retired in 1992
but the company continues to honor his legacy of “every
leadership group having a commitment to leaving the firm
stronger than we found it.”
McKinsey has always laid great store by its mission of “attracting, developing, exciting and retaining
exceptional people.” It was Bower who broke the mould of hiring experienced managers and went instead
to the country’s best business schools to recruit recent graduates. Even today the company is ranked
number one on Fortune’s list of the 100 Top MBA Employers. Besides the prestige of working for The
Firm, the allure of its remuneration packages continues to attract top-rung graduates. It is estimated that
McKinsey’s monthly fees can range from $300,000 to $1million, with the billing of individual consultants
being as high as $5,000 and associates $1,500 daily.
In 1988, Fred Gluck took over as Managing Director from Ron
Daniel, signaling the beginning of a new era for the company.
Gluck, an engineer by profession who had made his mark as a
McKinsey consultant to AT&T, however stuck to the tradition of
client over consultant. The firm continued with its role as the high
priest of consulting, working with clients in the fields of strategy
and overall organization as well as advising on improving short-
term performance through focus on profit declines, product/market strategies, cutting costs and increased
productivity. R&D, finance, sales and marketing, manufacturing and distribution, planning and control,
management information and information technology were other areas in which the company continued to
work extensively with its clients.
During Gluck’s tenure, revenue doubled from $510 million in 1987 to $1.2 billion in 1992. Gluck, a strong
advocate of the dissemination of cogent information, started so-called centers of competence that issued
bulletins on the work being undertaken that ranged from corporate finance to manufacturing logistics.
McKinsey published and continues to publish more academic reviews that any one of its competitors
which include Booz Allen Hamilton, A.T. Kearney (the original “other half” of James Mc- Kinsey’s
company), Bain & Co. and – in the area of strategy consulting – The Boston Consulting Group.
THE PRINTED WORD
The most high-profile of the plethora of McKinsey publications is the McKinsey Quarterly, published six
times a year. It carries articles on management, strategy and finance across a secular range of global
industries and functions. The company also publishes McKinsey on IT, aimed at CIOs and McKinsey on
Finance, aimed at CFOs.
In 1990, the firm established the McKinsey Global Institute, an
independent economics research group to undertake research on
critical economic issues facing businesses and governments
around the world. Four years later, in 1994, as globalization
deepened and as world economies liberalized, Rajat Gupta took
over as Managing Director from Gluck with the expected mandate:
maintain McKinsey’s growth but ensure that the dimensions of the
company do not destroy the ethos of the close-knit partnership
that had been so important to both James McKinsey and Marvin
Bower.
Gupta certainly succeeded with the first half. Going against the
reservations of many of the firm’s partners, he expanded
aggressively throughout Asia and Eastern Europe. By 2002, the company had grown from 58 locations to
84 worldwide, revenues had risen from $1.2 billion to $3.4 billion, partners from 421 to 891 and consulting
staff from 2,900 to 7,700.
The 1990s was a golden period for McKinsey. The IT boom and euphoric corporate-spending
turbocharged its revenues. The bust, of course, came in 2000-01 when the stock market collapsed,
particularly in the technology and telecommunications sectors. Though McKinsey was at the vanguard of
the e-business wave, when things turned sour it found itself with too many consultants and a paucity of
assignments for them. The utilization rate of its consultants fell to its lowest ever in three decades, a mere
52 percent, from the 64 percent level achieved during the dot-com boom.
It was, of course, the Enron debacle that brought Mc- Kinsey to the center of a controversial storm.
McKinsey had advised the energy trader for nearly 18 years, earning as much as $10 million in annual
fees. Considered the architect of its Wall Street success, many of the underlying principles of Enron’s
transformation, including its assetlight strategy, its loose-tight culture and the securitization of debt were
concepts that had been introduced into the Enron corporate ecosystem by a committed band of Mc-
Kinsey consultants. Despite the far-reaching consequences of the Enron disaster, McKinsey was able to
distance itself from the controversy, primarily because it had not been involved in the firm’s financial
restructuring or disclosure issues.
Gupta who served three terms at McKinsey’s helm, the maximum number permitted by the company,
when discussing his leadership style once said: “You have to make sure that there is equity in all your
decisions. ... It’s very important that people think you are making fair decisions. It is vitally important in the
area of appointments, because fundamentally that’s how you influence, and I have to make sure that I
listen to every viewpoint.”
It is advice that the current Worldwide Managing Director Ian Davis is likely to follow. Rapidly accelerating
globalization helped drive consulting firms in the 1980s and 1990s. Kennedy Information, a tracking firm,
places the global consulting market, including management, human resources and information technology
consulting, at $280 billion in 2006 and $300 billion in 2007. Mc- Kinsey, with its strong Fortune 1000
presence, its reputation as the ultimate problem-solving firm and the intellect of its consultants remains
the bespoke global management consulting firm.
But can it afford feelings of ennui? Could McKinsey succumb to complacency and stagnation? The world
economy is growing more complex by the day. Individual enterprises are being assaulted on several
fronts: increasingly sophisticated customers, competition from Asia and rising costs. In this era of
overnight Internet billionaires, laid-back management styles and a new generation of companies and
customers, McKinsey will have to tweak its own cultural markers. It must retain its central credo of
excellence in all that it does and continue hiring exceptional talent. But to remain relevant and successful
as we approach the end of the first decade of the twenty-first century, The Firm must re-ordain itself.
Clarity, insight and execution have always been Mc- Kinsey’s strengths. To that it must add flexibility and
foresight. That will help its roll-call of distinguished clients stay one step ahead of every socio-economic
trend that may unfold and impact businesses in unforeseen ways. Clairvoyance may not be one of
 McKinsey’s client offerings, but clear, insightful, decisive advice based on fact and extrapolation certainly
is. Dispensing that advice to a diverse, global-tinged patina of clients is McKinsey’s greatest challenge –
and future mission.

© Kore Kalibre. All rights reserved. About Us | Contact Us | Links | Privacy Policy