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GP29July:  McKinsey: Brightest But Not the Best?

McKinsey in the News.  Ever since the fall of Enron (www.enron.com), McKinsey and Company (www.mckinsey.com), the illustrious blockbuster management consulting firm, has been much in the news.  Articles in several leading publications have asked whether there are some flies in the McKinsey ointment.  At question is whether McKinsey itself played a crucial role in the moral and economic failings that brought Enron low.  CEO Skilling himself came from McKinsey, and the consulting firm’s yearly bill to Enron was a whopper.

The Teetering Point.  In the July 22, 2002 New Yorker (www.newyorker.com), Malcolm Gladwell’s “Talent Myth” reasons that a Mckinsey dogma--bright, young MBAs can remake the world--put Enron on a certain path to failure.  Marvin Bower, the founder of present day Mckinsey in 1939, had emphasized intelligence over on-the-job experience in his new hires.  In the 1990’s that had come to mean at McKinsey and Enron (and a score of consulting firms, incidentally) hiring massive numbers of bright MBA’s out of the best business schools and then turning them loose in the sandbox to work wonders throughout the business.  The freewheeling MBAs at Enron took the company down some strange and unproductive byways.  Brightness alone does not make for superior performance. As Gladwell puts it, “Are smart people overrated?”

CEO Confidant.  In the 1990’s, when we talked to more than 50 major chief executives about consulting firms, we discovered that they rate McKinsey’s senior partners highly, finding their one-on-one inputs valuable.  But they found the analytical work of other firms to be much more helpful.  Over the years when we have helped some companies implement McKinsey recommendations, we have, indeed, found that the details have to be fleshed out in order to be practical and useful.  Perhaps this is about what we should expect from a company with 84 offices that claims to serve “every business sector and industry,” as well as governments and non-profits.  Its experienced seniors bring a lot to the table, but its MBA juniors might just be a bit stretched.  This personnel equation has produced rampant growth for McKinsey, yet we must ask whether this is the right model going forward.

The Next Consulting Firm.  With more than one consulting firm in disrepair and with a few out of business, we have to ask what’s next for consulting.  One Dallas chief executive has told us that consulting firms cannot keep up with the changes in his markets and that he has had to find other ways of staying ahead of the business curve.

The tasks for consulting firms of various stripes are speed, revenue, and intuition.  They have to help their clients leap ahead of the meltdown in their markets or the movement of production to Asia.  They have to find new revenues for companies hitting the growth plateau: if the fizz has gone out of colas, they have to get their beverage clients adeptly into specialty water, non-carbonated drinks, and snacks.  They must find the intuition and inspiration to replace pure analysis: analysis will project poor returns for almost any new product, but intuition will pick out some winners and suggest new ways to sell them. In a word, they must become a bit more creative, soaring well beyond mere intelligence.  But creative businessmen are a lot harder to find than MBAs....

P.S. Our associate Steve A. Martin contributed key insights to this letter.

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