McKinsey & Company (informally McKinsey or McK) is an American multinational strategy and management consulting firm that offers professional services to corporations, governments, and other organizations. Founded in 1926 by James O. McKinsey, McKinsey is the oldest and largest of the "MBB" strategy consultancy firms. The firm mainly focuses on the finances and operations of their clients.
Under the direction of Marvin Bower, McKinsey expanded into Europe during the 1940s and 1950s. In the 1960s, McKinsey's Fred Gluck—along with Boston Consulting Group's Bruce Henderson, Bill Bain at Bain & Company, and Harvard Business School's Michael Porter—initiated a program designed to transform corporate culture. A 1975 publication by McKinsey's John L. Neuman introduced the business practice of "overhead value analysis" that contributed to a downsizing trend that eliminated many jobs in middle management.
McKinsey has been the subject of significant controversy and is the subject of multiple criminal investigations into its business practices. The company has been criticized for its role promoting OxyContin use during the opioid crisis in North America, its work with Enron, and its work for authoritarian regimes like Saudi Arabia and Russia. The criminal investigation by the US Justice Department, with a grand jury to determine charges, is into its role in the opioid crisis and obstruction of justice related to its activities in the sector. McKinsey works with some of the largest fossil fuel producing governments and companies, including to increase fossil fuel demand.
McKinsey has a notoriously competitive hiring process, and is widely seen as one of the most selective employers in the world. McKinsey recruits primarily from top-ranked business schools, and was one of the first management consultancies to recruit a limited number of candidates with advanced academic degrees (e.g., PhD) as well as deep field expertise, particularly those who have demonstrated business acumen and analytical skills. McKinsey publishes a business magazine, the McKinsey Quarterly.
History Early history
McKinsey & Company was founded in Chicago under the name James O. McKinsey & Company in 1926 by James O. McKinsey, a professor of accounting at the University of Chicago. He conceived the idea after he had witnessed inefficiencies in military suppliers while he was working for the United States Army Ordnance Department. The firm called itself an "accounting and management firm" and started out giving advice on using accounting principles as a management tool. McKinsey's first partners were AT Kearney, hired in 1929, and Marvin Bower, hired in 1933.
Bower is credited with establishing McKinsey's values and principles in 1937, based on his experience as a lawyer. The firm developed an "up or out" policy, where consultants who are not promoted are asked to leave. In 1937, Bower established a set of rules: that consultants should put the interests of clients before McKinsey's revenues, not discuss client affairs, tell the truth even if it means challenging the client's opinion, and only perform work that is both necessary and that McKinsey can do well. Bower created the firm's principle of only working with CEOs, which was later expanded to CEOs of subsidiaries and divisions. He also created McKinsey's principle of only working with clients the firm felt would follow its advice. Bower also established the firm's language.
In 1932, the company opened its second office in New York City. In 1935, James McKinsey left the firm temporarily to be the chairman and CEO of client Marshall Field's. In 1935, McKinsey merged with accounting firm Scovell, Wellington & Company, creating the New York-based McKinsey, Wellington & Co. and splitting off the accounting practice into Chicago-based Wellington & Company. A Wellington project that accounted for 55 percent of McKinsey, Wellington & Company's billings was about to expire and Kearney and Bower had disagreements about how to run the firm. Bower wanted to expand nationally and hire young business school graduates, whereas Kearney wanted to stay in Chicago and hire experienced accountants.
In 1937, James O. McKinsey died after catching pneumonia. This led to the division of McKinsey, Wellington & Company in 1939. The accounting practice returned to Scovell, Wellington & Company, while the management engineering practice was split into McKinsey & Company and McKinsey, Kearney & Company. Bower had partnered with Guy Crockett from Scovell Wellington, who invested in the new McKinsey & Company and became managing partner, while Marvin Bower is credited with founding the firm's principles and strategy as his deputy. The New York office purchased exclusive rights to the McKinsey name from the former McKinsey Chicago office which was separated with AT Kearney in 1946.
Years of growth McKinsey & Company grew quickly in the 1940s and 1950s, especially in Europe. It had 88 staff in 1951 and more than 200 by the 1960s, including 37 in London by 1966. In the same year, McKinsey had six offices in major US cities, including San Francisco, Cleveland, Los Angeles and Washington D.C., as well as six abroad. These foreign offices were primarily in Europe, such as in London, Paris, and Amsterdam, as well as in Melbourne. By this time, one third of the company's revenues originated from its European offices. Guy Crockett stepped down as managing director in 1959, and Marvin Bower was elected in his place. McKinsey's profit-sharing, executive and planning committees were formed in 1951. The organization's client base expanded especially among governments, defense contractors, blue-chip companies and military organizations in the post–World War II era. McKinsey became a private corporation with shares owned exclusively by McKinsey employees in 1956.
After Bower stepped down in 1967, the firm's revenues declined. New competitors like the Boston Consulting Group and Bain & Company created increased competition for McKinsey by marketing specific branded products, such as the Growth–Share Matrix, and by selling their industry expertise. In 1971, McKinsey created the Commission on Firm Aims and Goals, which found that McKinsey had become too focused on geographic expansion and lacked adequate industry knowledge. The commission advised that McKinsey slow its growth and develop industry specialties.
In 1975, John L. Neuman, a McKinsey consultant at the time, published "Make Overhead Cuts That Last" in Harvard Business Review, in which he introduced new rules for scientific management such as "overhead valuation analysis" (OVA). (extra ) OVA guided McKinsey's "path to downsizing", responding to the "mid-century corporation's excessive reliance on middle management". Neuman wrote that the "process, though swift, is not painless. Since overhead expenses are typically 70% to 85% people-related and most savings come from work-force reductions, cutting overhead does demand some wrenching decisions."
In 1976, Ron Daniel was elected managing director, serving until 1988. Daniel and Fred Gluck helped shift the firm away from its generalist approach by developing 15 specialized working groups within McKinsey called Centers of Competence and by developing practice areas called Strategy, Operations and Organization. Daniel also began McKinsey's knowledge management efforts in 1987. This led to the creation of an IT system that tracked McKinsey engagements, a process to centralize knowledge from each practice area and a resource directory of internal experts." By the end of his tenure in 1988 the firm was growing again and had opened new offices in Rome, Helsinki, São Paulo and Minneapolis.
Fred Gluck was McKinsey's managing director from 1988 to 1994. The firm's revenues doubled during his tenure. He organized McKinsey into 72 "islands of activity" that were organized under seven sectors and seven functional areas. By 1997, McKinsey had grown eightfold over its size in 1977. In 1989 the firm tried to acquire talent in IT services through a $10 million purchase of the Information Consulting Group (ICG), but a culture clash caused 151 out of the 254 ICG staff members to leave by 1993.
In 1994, Rajat Gupta became the first non-American-born partner to be elected as the firm's managing director. By the end of his tenure, McKinsey had grown from 2,900 to 7,700 staff and 58 to 84 locations. He opened new international offices in cities such as Moscow, Beijing and Bangkok. Continuing the structure developed by prior directors, Gupta also created 16 industry groups charged with understanding specific markets and instituted a three-term limit for the managing director. McKinsey created practice areas for manufacturing and business technology in the late 1990s.
McKinsey set up "accelerators" in the 1990s, where the firm accepted stock-based reimbursement to help internet startups; the company performed more than 1,000 e-commerce projects from 1998 to 2000 alone. An October 1, 2000, article in the New York Times described the compulsory mini-courses that McKinsey—and its two largest rivals Boston Consulting and Bain—offered their "hyper-educated" young new recruits. Once completed, these newly certified management consultants would begin their work of "advising the executives of multibillion-dollar companies" on "projects" not related to their academic backgrounds". "Lawyers would help packaged-foods companies develop new products, and physicists would tell Internet start-ups how to stand out from the crowd."
The burst of the dot-com bubble led to a reduction in utilization rates of McKinsey's consultants from 64 to 52 percent. Though McKinsey avoided dismissing any personnel following the decline, the decline in revenues and losses from equity-based payments as stock lost value, together with a recession in 2001, meant the company had to reduce its prices, cut expenses and reduce hiring. In 2001, McKinsey launched several practices that focused on the public and social sector. It took on many public sector or non profit clients on a pro bono basis. By 2002, McKinsey had invested a $35.8 million budget on knowledge management, up from $8.3 million in 1999. Its revenues were 50, 20, and 30 percent from strategy, operations, and technology consulting, respectively.
In 2003, Ian Davis, the head of the London office, was elected to the position of managing director. Davis promised a return to the company's core values after a period in which the firm had expanded rapidly, which some McKinsey consultants felt was a departure from the company's heritage. Also in 2003, the firm established a headquarters for the Asia-Pacific region in Shanghai. By 2004, more than 60 percent of McKinsey's revenues were generated outside the U.S. The company started a Social Sector Office (SSO) in 2008, which is divided into three practices: Global Public Health, Economic Development and Opportunity Creation (EDHOC) and Philanthropy. McKinsey does much of its pro-bono work through the SSO, whereas a Business Technology Office (BTO), founded in 1997, provides consulting on technology strategy. By 2009, the firm consisted of 400 directors (senior partners), up from 151 in 1993. Dominic Barton was elected as managing director, a role he was re-elected for in 2012 and 2015.
Recent history
Rajat Gupta along with another McKinsey executive, Anil Kumar, were among those convicted in a government investigation into insider trading for sharing inside information with Galleon Group hedge fund owner Raj Rajaratnam. Though McKinsey was not accused of any wrongdoing, the convictions were embarrassing for the firm, since it prides itself on integrity and client confidentiality. McKinsey no longer maintains a relationship with either senior partner.