Valuable lessons from a highly successful business
McKinsey consultants, in becoming an indispensable part of government and corporate decision making at the highest levels, have helped invent what we think of as American capitalism and spread it to every corner of the world, according to Duff McDonald in his book The Firm: The Story of McKinsey and Its Secret Influence on American Business. At the same time, McKinsey has been implicated in a striking list of failures.
The book describes how James McKinsey, an accounting lecturer, wrote an influential book on budgeting for corporations and then started up business in the mid 1920s as James O McKinsey & Company, Accountants and Management Engineers. He soon developed a General Survey Outline as a system for understanding all aspects of a company including finances, organisation and competitive positioning.
The firm subsequently grew to a position of great influence with its distinctive values and operational methods. A downturn in the 1970s led to a focus on systematic knowledge building. In the 1990s when Rajat Gupta (subsequently convicted of insider trading) was managing director, the firm focused more on money than on its core values, according to the author, but subsequent managing directors have brought a return to the core values.
A very significant percentage of the largest companies and governments in the world use the services of McKinsey and pay very handsomely for the privilege. The question which the book raises is whether the services provided are worth the cost, and the author’s answer is a qualified yes. Some companies seem to have received very bad advice, and other companies seem to have been paying fees for too long a period of time, but on the whole McKinsey’s clients seem to have benefited.
While the book provides interesting perspectives on the history and business of one management consulting firm, it also provides some valuable lessons for anyone involved in the management of other types of professional services firms.