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The Mc Kinsey Mystique


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THE McKINSEY MYSTIQUE

American Express. IBM. Westinghouse. They're three of America's corporate titans--and all three have new chief executives at the helm. All three chiefs, in turn, share something on their resum s: they've worked for the world's most prestigious management consulting firm, McKinsey & Co.

McKinsey consultants have been moving into executive suites ever since James O. McKinsey left the firm he founded in 1926 to head retailer Marshall Field & Co. But in the past year, the McKinsey Mafia, as some call it, has really scaled the heights. Besides IBM's Louis V. Gerstner Jr., there's Harvey Golub, who won the top job at American Express Co. in February, Michael H. Jordan, who took over at Westinghouse Electric Corp. in June, and Philip Purcell, CEO of the recently spun-off Dean Witter unit of Sears, Roebuck & Co.

Measured by the number of alumni who have captured corner offices, McKinsey is by far the most influential consulting firm in the world. And McKinsey-bred chairmen, CEOs, and presidents also vastly outnumber those schooled at the corporations vaunted for turning out top-management material, including General Electric, IBM, and Procter & Gamble. The firm's prodigious offspring run companies in a broad array of industries, from jeans maker Levi Strauss to cable-TV operator Tele-Communications, software producer Lotus Development, battery maker Duracell International, auction house Sotheby's, and giant Northeast Utilities.

McKinsey alums, moreover, wield considerable power and influence in scores of other companies where they aren't top dogs. A dozen or more of the firm's ex-consultants populate the senior ranks of such brand-name companies as Citibank, General Electric, and PepsiCo. McKinsey-trained executives hold key jobs at J.P. Morgan, Raychem, Merrill Lynch, Times Mirror, First Boston, Salomon Brothers, and the World Bank. "The big knock on consultants is that if you can't do it, you consult," says Jeffrey K. Skilling, a former McKinsey senior partner who is co-chairman of $6 billion Enron Gas Services Group. "If a large group of us can be successful as executives, it's a powerful signal that that's not the case."

But just why are they successful--and why now? What is it about these McKinsey types that makes them so attractive to U.S. corporations? For starters, you don't get to be an ex-McKinseyite without first having survived one of the most ferocious selection processes imaginable: The firm combs through more than 50,000 resum s a year to hire about 550 new consultants.

Then there's the intensive training those select ones receive and the exposure they get on the job to a broad range of companies and issues. "It's a cram course in business experience," says Paul W. Chellgren, an alumnus who is president of Ashland Oil Inc. "It was a compressed opportunity to see a lot of companies, industries, and problems in a short period of time. You got your BS, your MBA, and your McK."

POWERFUL WEB. Nor should one discount the value of the McKinsey old boys' network (which has a few old girls, too--women represent less than 5% of the firm's 465 principals and directors). Every erstwhile McKinseyite has a powerful global web of 3,500 fellow alumni to call on, or be called on by (page 74). They routinely hire one another and call on the consulting services of their alma mater firm. And because McKinsey's assignments usually involve major issues of strategy and organization, consultants rub shoulders with senior managers and directors at client companies.

Even more important than the selection, the education, and the connections, though, is what might be called the McKinsey Method. It's a cool, analytical approach to management that challenges assumptions and rejects wishful thinking. "You learn what I call ruthless logic," says Westinghouse's Jordan, who worked for McKinsey from 1964 to 1974. "You cut through emotions and people's opinions and get down to the facts. That discipline has been the foundation for my ability to work through complicated situations."

Of course, McKinsey's partners are hardly infallible. It was McKinsey, for example, that advised General Motors Corp. on its disastrous mid-1980s reorganization. The consultant restructured the massive company from five into two carmaking groups that, critics say, resulted in even greater inefficiencies and failed to cut costs or improve productivity. And there are no doubt scores of other assignments that didn't result in improved corporate performance--though determining whether the problem was bad advice or bad execution is well nigh impossible.

Nor has every alum been a success when making the move from consultant to executive. In December, for example, William E. Johnson resigned as chief executive of Scientific-Atlanta Inc. after a dispute with the board of directors. Although the ex-McKinsey consultant had successfully restructured the electronics concern, he clashed with the board over his tough management style.

Some critics, moreover, believe McKinsey's meteoric growth in recent years has made it a bureaucratic, unwieldy organization that too frequently dishes out homogenized advice. But dozens of interviews with clients, competitors, and former McKinseyites suggest that its role as the premier purveyor of management advice remains intact. And its financial performance over the past five years provides further evidence of its success in the marketplace. McKinsey's revenues have more than doubled since 1987, climbing to $1.2 billion from $510 million, clearly outpacing the industry's growth rate. "It's a first-class firm and everybody's longtime paragon of a high-quality company," comments David G. Robinson, chief executive of CSC/Index Inc., the Cambridge-based consulting firm that pioneered the hot concept of reengineering.

With their fact-based, problem-solving style, those schooled in McKinsey methods are known for bringing a dry-eyed willingness to question traditions, set new strategies, and take the often painful steps necessary to help companies change with the times. "Strategic thinking is in great demand, and if McKinsey has a niche, it's strategy," says Gerard Roche, chairman of Heidrick & Struggles Inc., who did the executive searches for the CEOs at Westinghouse and IBM.

What sets McKinsey apart, even some rivals concede, is that the firm continually assembles the very best people, is more likely to work at the highest levels of management, and demands a near-religious devotion to the job. And with 60% of its revenues coming from outside the U.S., McKinsey consultants view problems in particularly global terms.

Many alums say their McKinsey years were among the most formative of their careers. "McKinsey had a culture that fostered rigorous debate over the right answer without that debate resulting in personal criticism," says IBM's Gerstner. "It was the supremacy of the idea that was important, whether it came from the youngest associate or the most senior partner. The task was to come up with the right answer."

That was certainly the experience of Karl R. Wyss, chairman of Lear Siegler Inc., who did a seven-year stint at the firm. Wyss took over Lear Siegler two years after the conglomerate was taken private by Ted Forstmann & Partners in 1987. For years, managers believed they had been making money in a significant product line, recalls Wyss. Wrong. "Not only did we find we were losing a bundle, but we had lost half of the share of the market in the past five years without management knowledge."

NO ASSUMPTIONS. Wyss relocated the plant to take advantage of cheaper labor and reengineered the product to cut manufacturing costs. It was a typical McKinsey approach: Take nothing on assumption, gather all relevant facts, draw conclusions, and make recommendations. "My McKinsey experience taught me that many managers work with partial or wrong information, or they compete on success factors that are no longer true anymore," he says.

Of course, McKinsey's most profound impact on business comes in its official role as corporate doctor to at least half of the 500 largest U.S. corporations, as well as many of the most elite foreign giants. When CBS Inc. wanted a strategic review of its structure, operations, and finances in 1991, it turned to McKinsey. When PepsiCo's Frito-Lay Inc. wanted a study of its long-term strategy, McKinsey served up solutions that led to the dismissal of nearly a third of Frito-Lay's corporate headquarters staff.

At Eastman Kodak & Co. earlier this year, McKinsey came up with a raft of recommendations for Chairman Kay R. Whitmore, including the sale of its chemical unit. The consultants presented their ideas directly to the board just as it was having doubts about Whitmore's abilities to aggressively follow up. At ITT Corp., McKinsey won out over two other firms for an assignment to analyze the conglomerate's nine corporate and divisional headquarters by the end of this month. Estimated cost of the study: about $3 million. Expected savings: $90 million from greater efficiencies and layoffs.

For all its influence and pervasive presence, McKinsey has recently suffered a few bruises to its reputation. Mass defections of the kind McKinsey has rarely known have begun troubling the firm lately. Last year, a New York-based partner defected to rival A.T. Kearney Inc. to head that consulting firm's financial-services practice. He took with him 16 McKinsey consultants. The firm's Italian office, in particular, has been riven by defections. In late 1989, Gian Filippo Cuneo, one of the hottest McKinsey partners, left to set up his own firm, taking 15 colleagues with him. Last January, Giorgio Rossi Cairo, another top Italian partner, walked out with 14 professionals to go directly into competition with his alma mater and Cuneo.

CULTURE CLASH. More importantly, over the past decade, the fastest-growing area of consulting has been in information technology, where corporations have been making their biggest capital investments. McKinsey, as a general management-consulting firm, attempted to play catchup through--uncharacteristically--acquisition. It bought Information Consulting Group in late 1989 from British-based Saatchi & Saatchi Advertising International. But more than half of the 19 partner-level technology experts it acquired in the deal have since walked out, including ICG's president, Gresham T. Brebach, who left for Digital Equipment Corp. earlier this year. Of the original 245 ICG staffers, only 94 have stayed.

Although the acquisition was championed by Fred W. Gluck, who has guided the firm since 1988, it nevertheless ran afoul of McKinsey's intense, dominant culture. Under Brooklyn-born Gluck, McKinsey has made successful forays into new territories, opening 18 new offices, all but two outside the U.S. He also launched an elaborate internal network for making better use of the intelligence McKinsey consultants gather on assignments around the world. Gluck, 58, will step down as managing director next June when, many insiders believe, McKinsey may well elect the first non-American partner to head the firm. Among the front-runners: Christian Caspar in Scandinavia, Lukas M hlemann in Switzerland, Norman Sanson in London, and Herb Henzler in Germany. Gluck and other partners declined to be interviewed for this article.

GRAND OLD MAN. Whoever wins the top job, the challenge will be to preserve McKinsey's partnership system while still promoting growth. With revenues up 14% last year, McKinsey outbills every other management advice-giving firm in the world except Andersen Consulting, according to Consultants News, an industry newsletter. Yet McKinsey's revenues per professional total $387,000. That's more than triple Andersen's average, because so much of McKinsey's consulting is at the top levels of management, where assignments are more lucrative.

The tone of the place has long been set by Marvin Bower, the legendary spiritual leader of the firm. As managing director from 1950 to 1967, he developed many of McKinsey's key policies. The Harvard-trained lawyer brought the professional standards of a top-flight law firm to management consulting, insisting that the client always come first. Recalling the state of the industry when he joined McKinsey in 1933, Bower says that "at the time, management consulting wasn't even called that. It was called management engineering."

Golub at American Express calls Bower, now 90, "one of the finest leaders in American business ever. He led that firm according to a set of values, and it was the principle of using values to help shape and guide an organization that was probably the most important thing I took away."

Those values continue to unite the firm's 58 offices around the world, each run by a Master-of-the-Universe type who combines business acumen with social charm or political savvy. In Cleveland, Managing Director Jim Bennett was educated at Cornell University, earned his law degree from Harvard University, and married a Stuttgart Ballet dancer. In D sseldorf, senior partner Herbert Henzler is so politically connected that some McKinsey alums believe he could some day become Chancellor of Germany.

To become a McKinseyite, one must pass through a fine screen. Some 275 to 300 of the firm's 542 hires last year were recently minted MBAs from such top schools as Harvard, Wharton, Northwestern, and Stanford. To get the very best, McKinsey routinely dangles the highest starting-pay packages in MBA recruiting of any management consulting firm, investment bank, or corporation.

The interview process is grueling and intense. In a series of sessions, candidates are asked to analyze and provide solutions off-the-cuff to brief business problems outlined by McKinsey consultants. On McKinsey's candidate-evaluation forms, they're assessed on everything from their "ability to synthesize" and solve problems with "clear, logical reasoning" to their "personal presence" and "potential client impact." Each candidate is rated on a scale of 1 to 10. One to five is death, meaning the candidate, in the firm's words, "lacks McKinsey's intrinsic qualities."

UP OR OUT. For those with the right stuff, McKinsey offers a business career that may well be unique today: an orderly progression with preset steps from associate to principal and, finally, director over a 12-year period. Along the way, the firm is constantly winnowing staff into an ever more exclusive club, paring down the numbers of people who make it to director or senior partner.

All along, it's up or out: If you're not promotable to the next level, you're gently asked to leave the firm. Only one in five associates becomes a principal, or junior partner, in the first six years. Only half of those who become principals end up as directors. The financial rewards for survivors are generous: Directors earn as much as $2 million a year in salary and bonus, and all partners receive equity in the firm.

McKinsey training is comprehensive and constant. In the first year, every associate is put through a two-week introductory training program that provides the basic McKinsey tools for problem-solving and analysis. There are also communications-skills workshops, team-leadership training seminars, and client-relationship workshops throughout an associate's first five years.

Besides educating, the training programs offer a prime opportunity to do a little global networking. "In any class, you'll sit next to an Italian, a German, an American, and a Spaniard," says Roger Parry, an alum at Aegis Group PLC in London, who was with McKinsey from 1985 to 1988. "So if you're later sitting in an office in London and want to know what's going on in Caracas, you simply call up the office and inevitably talk to someone you met in a training session or an assignment."

At McKinsey, international experiences are not just left to random socializing. Global teams of consultants are commonly assembled for corporate assignments. Nearly two dozen of McKinsey's Cleveland-based consultants, for instance, spent from 4 to 18 months working on project teams in a dozen different nations, from Australia to Britain. Another 10 consultants in Cleveland are natives of other countries, including the former Soviet Union and El Salvador.

Wherever they are stationed, the firm's professionals continually tap into the expertise of colleagues via an extensive information network. A Knowledge Resource Directory provides an on-line guide to which consultant knows what--whether that person is based in Prague or Taipei. And a special data base sorts and stores the knowledge gained by consultants from their projects around the globe.

LONG DAYS. The most valuable training, of course, is on the job. "At McKinsey, you're trained to be a CEO," says C. Robert Kidder, chairman and CEO of Duracell International. "You always have smart people challenging you. And at a very young age, you're trying to convince older, more experienced people to change their companies even though you don't know as much about the business as they do."

Employees put in 12- to 14-hour days and are expected to sometimes work weekends and occasionally even through the night. "It shouldn't surprise anybody that McKinsey has so many young bright people, because if they weren't young they wouldn't be able to do the work," says William B. Ellis, a former partner who is now chairman of Northeast Utilities. "It was very, very hard-running."

Most of those long hours are spent in teams where the heavy lifting is done by young, inexperienced associates guided by a principal and a director responsible for the overall quality of the assignment. Increasingly, McKinsey consultants work directly in teams side by side with corporate managers and executives.

In the current assignment for ITT, for example, a pair of McKinsey consultants has been placed in a team with six or seven ITT managers at each of the company's nine corporate and divisional headquarters. "It combines the best of all worlds," says Robert A. Bowman, chief financial officer of ITT. "McKinsey is there to challenge the status quo with 'what if' questions, and the employees are there to counteract that with the real world and the inside lore of the company."

No doubt, McKinsey's consultants are being greeted with some skepticism--as most of their brethren are. But at a time of rapid change, when competitive pressures appear to have reached a new high, more companies than ever appear willing to let outsiders in for a cold, hard look at the way they do business.

As observers watch the goings-on at IBM, Westinghouse, American Express, and other giant corporations now headed by McKinsey's alums, they can expect that--and more. Westinghouse's Jordan, for one, hints strongly that he will bring new people into the company. "It's been strictly from the inside," Jordan says. "Like a lot of old-line companies, they probably need some new blood."

Don't be surprised if some of that new blood is Type M, for McKinsey. John A. Byrne in New York, with bureau reports


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