October - 2001 - issue > Cover

McKinsey is a private company. Not only in the sense that 900 partners jointly own the 75-year-old firm, but also in the sense of a hush hush relationship with the press and the outside world. Partners are remarkably tightlipped when it comes to talking about the company. So much so that when approached for interviews directly, all of them pointed toward their director of media relations. One partner said he mistakenly thought the interview was about biotech, a practice that he leads. In other words, they were politely stonewalling. That was, until Managing Director Rajat Gupta, surprisingly agreed to talk about the firm. Suddenly, the private world of the most respected management consultancy firm in the world opened itself.
But what is the need for such intense privacy? “We don’t want to be in the limelight for ourselves,” says Gupta firmly. “We want our clients to be in the limelight; we want them to succeed.”

Two-Pronged Focus on Clients and Employees
Partners repeat the same phrase until it sounds almost trite: “Our focus is on delivering value to clients,” says Vivek Mohindra. “Our people are part of McKinsey’s value system,” says Raj Garg. It appears as if McKinsey is a perfectly tuned machine that delivers a uniform and unchanging message, no matter with whom you speak. The holier than thou image is hard to digest. Yet alumni spanning different industries vouch for McKinsey’s integrity and commitment not only to improving client performance, but providing a platform where its employees hone their skills.

“McKinsey has an amazing training program and a very strong coaching-centric environment,” raves Upal Basu, vice president of New Jersey-based mFormation, who worked at McKinsey for two years. “It provides a wonderful catapult into senior executive positions that would not have been possible had you been working for a couple of years at another firm.”

Inder Soni, now at Zero Stage Capital, says that McKinsey has succeeded largely by recruiting the best people with deep pockets of expertise in a variety of industries and focusing on solving significant problems for top companies. Soni stresses that McKinsey has done very well financially, without focusing on money.

“We Are Not a Business”
In a similar vein, McKinsey Partner Anil Kumar explains, “We don’t have a business. We are professionals and don’t talk about revenues. There is no pressure on McKinsey to ever be public.”

Gupta explains that because McKinsey’s core mission is to serve clients and provide the best environment to attract, develop and retain talented people, “short term profits are way low in the priority.” The office in Japan operated for the first 25 years without ever making any money. But nobody cared because it was an important economy to be present in.

Rajini Sundar, a vice president at American Express, says that the corporate work culture did not revolve around crude business talk. Internal team discussions, while on a project, always focused on how to deliver the right solution that would increase the client’s performance and strengthen its business.

“You never see any invoice,” says a McKinsey alumnus who asked not to be named. Now at a startup that he founded, he adds: “Say we were doing a project for $300,000 a month for three months. In team meetings, we never thought of extending the project for another six months, [to bring in more money for McKinsey] though at the partner and director level, they must have been thinking about that.”

McKinsey also does not advertise its services. Seventy-five percent of its business comes directly from clients who have previously engaged it for an assignment. Gupta says that the company believes in being present in the marketplace with ideas and knowledge about certain industries and different business issues, and not with information about revenues and profits.

A Potential Achilles Heel This highbrow attitude toward making money and the distaste for being called a business may prevent McKinsey from being even more successful in the future.

One alum suggests that McKinsey needs to enter several different lines of business, including venture capital, technology consulting, and implementational and operational areas, to be competitive in a new economic environment, and needs to change the way it serves its clients and charges fees.

For example, prominent consulting firm Accenture is more likely to share in the gains or the upsides of a project than McKisey would be.

The same alum notes, “Instead of saying we will charge you $350,000 per month for three months like McKinsey does, Accenture will say ‘Our solution is so good that you pay us $500,000 and 50 percent of whatever you will save as a result of our project.’”

He says McKinsey is reluctant to change the way it conducts business, because it is a product of the old economy and as such is steeped in tradition. Historically, the strategy consulting business has charged a flat fee for serving a client, and stayed away from contingency fees. McKinsey has continued to follow that model.

He adds that the firm also needs to have different teams in terms of size, instead of the standard model of having one partner, two managers and three associates — “highly qualified, highly expensive, super brainy people” — because that method will not allow McKinsey to grow in any other way except with people.

McKinsey and the Slowdown
But this criticism has been leveled at the company before. During the dot-com euphoria, e-commerce consulting firms took jibes at the company saying it was too big and too slow. Yet McKinsey neither started a fund, nor entertained any discussions to go public.

“In hindsight we were right,” says Gupta with satisfaction. “All these e-commerce consultants that were saying McKinsey is not up to the times are all pretty much bankrupt. That’s because these companies were going against fundamentals, which I guess lasted for a while, but they don’t have long staying power.”

McKinsey’s is one of the few consulting firms that has not announced layoffs or undertaken other measures to cope with the downturn. Booz-Allen & Hamilton, for instance, is deferring offers, something that Basu of mFormation vehemently declares McKinsey would never do.

“We won’t do anything like that,” Gupta maintains, referring to the layoffs and deferred offers at competing firms. “We are there to provide opportunity for young people.”

In spite of McKinsey’s emphasis on improving the expertise of its own employees, the attrition rate has usually been in the range of 15 to 20 percent. Now the attrition rate, which had shot up to 25 percent during the up cycle, is down to five percent because jobs have dried up. Also, acceptances have increased to 90 percent, compared with 65 percent during the boom.

Regarding the effect of the slowdown, Gupta says McKinsey’s growth has flattened, but hasn’t dropped significantly. He doesn’t believe that there is going to be a quick turnaround. Consumers are not saving at all, something that has to change soon. While he points out that the government believes that consumer spending will play a vital role in steering the economy out of the current slump, he raises questions as to how long consumers will continue to spend with negative savings.

McKinsey’s evolution in the 1990s
The company has weathered the slump because McKinsey has not changed in terms of its core values, Gupta and other partners affirm. But with respect to people that it hires there has been a significant change. Traditionally, the firm hired M.B.A.s predominantly. Mohindra, a partner, says that McKinsey was one of the first firms to “institute an aggressive non-M.B.A. hiring policy,” although the company is still the largest employer of M.B.A.s. As a result of that policy, only half of all employees in North America are M.B.A.s, a quarter are Ph.D.’s and another quarter hold law, medical and other degrees.

When people without M.B.A.s are recruited, they are sent to a three-week training program, known as the “mini M.B.A.” M.B.A.s attend a weeklong program. After that, a new consultant chooses a field that is generally related to his or her background. But the new consultant has absolute freedom to flirt with other fields.

“My Ph.D. was in semiconductor processing,” Mohindra says. “I tested telecom, marketing, pharmaceuticals, healthcare and then gravitated back to semiconductor processing.”

Mohindra adds that the second change has been in the type of companies that McKinsey advises. Traditionally, they were large, Fortune 500 companies. The dot-com era saw the company serve both large clients and new players. But when the boom turned to bust, the balance has tilted back in favor of larger firms.

Strong Alumni Network
Maintaining contacts with people who once worked at McKinsey is key to bringing in business. Gupta claims that the CEOs of many companies are ex-McKinsey people and engage McKinsey because they are intimately aware of how the company functions. Only a quarter of all the assignments that the company is involved in occur through bidding against competing consulting firms. So networking and keeping the club running is a McKinsey mantra.

Every single alumnus contacted for this article acknowledged the effort that McKinsey takes to keep strong ties with its alumni. Sundar says she did not know of any other company that actively helped employees to look for a job in terms of referring them to clients, headhunters and giving recommendations.

One alum jokes that they are treated better than employees and, in turn, help McKinsey out.

“They [partners] whisper into the ears of CEOs,” he says.“ Lots of ex-McKinsey people have a deep sense of gratitude toward the firm — it’s like a virtuous circle.”

Implementation Is Key
Partners vociferously declare that they accept an engagement only if they are sure that the clients are ready for change. Accordingly, they have detailed meetings with their clients even before the project formally begins. Nobody has a 100 percent record, admits Gupta. But he adds that on many occasions a consulting team has withdrawn from a project because partners felt that the company was not sincere about executing their plans.

“They [CEOs] want to prove a point to their board or they already have an answer, but want a good housekeeping seal of approval from McKinsey,” Gupta says.

But McKinsey does not overtly refuse such assignments. Very diplomatically, it tells the company that it simply cannot staff the project.

Expanding McKinsey to Other Countries
“Typically, we will open an office if five or six senior people feel passionate about a particular business community and want to start a practice there,” Gupta explains. “It has very little to do with market analysis because we believe that in most places there is a huge market opportunity.”

The Mumbai office, for instance, was opened by Tinu Puri in 1992, even before India began economic reforms. The progress has been rapid and the office now has 100 consultants with homegrown partners. “In my view, it has been one of our most successful launches,” Gupta notes.

The Way Forward
Ultimately, a company is known for its people, and alumni agree that McKinsey brings together a wondrous collection of bright and talented individuals.

“What I miss is, everybody there is really smart, really hard working and really good,” says one alum. “It’s not like that at all at most companies.”


Garg, a partner, says that navigating in an ever-changing world, while remaining genuine to the focus on people and clients, will be the challenge for McKinsey in the twenty-first century. si