Former McKinseyite here (and one reasonably skeptical of the firm as a whole)... nobody hires McKinsey for fresh college grads. That’s just something they tell fresh top of class Ivy League college grads to make them feel important. Clients hire Directors to give them peer level strategic counsel. How they technically allocate payment for time across consultants is just backfillling to get to a number already agreed to in advance.
By the way, this is not to denigrate the analysts at McKinsey who were in my time typically very smart, nice, hardworking, etc... They performed an important data gathering function. But the bill for their time has the sort of relationship you get when a Legal Assistant at Cravath photocopies stuff in your file. No they aren’t “worth” $500k/hour or whatever rate they bill at these days to photocopy but that isn’t the point. You are paying for Cravath and how that Cravath fee is broken down is largely irrelevant.
Thats because there is 0 additional marginal cost for their salaried consultants' time, too. Like many in the workforce, they are a paid a salary, and it's the same amount whether working 40 hours or 80 hours.
No... that's not a good explanation. While it is true they're salaried, there are plenty of professions that bill by the hour for the time of salaried employees. How you bill doesn't need to match how you pay salaries. It could also be billed per day of work regardless of the number of hours and the issues mentioned above would still be pertinent.
It's only illegal if your total salary would work out to less than minimum wage. Working 80 hour weeks year round at WA's 2020 minimum wage works out to $70k a year if you include time and a half after 40hrs/week.
Your job isn’t to do X hours of work your job is to meet a goal, objective or target. You don’t get to stop when the clock hits a certain hour in this industry.
Absolutely does. Everyone just signs to opt out of the 40 hour (something like that) working week directive and contracts are clear that there is no such thing as overtime.
This is slightly twisting what you actually get, though. You want the Director-level time (and that's what is advertised during the sales process), but realistically you get a team of largely inexperienced kids supported by the person you actually want, who gives you a few hours while billing for the whole team to meet their blended rate target. In a lot of cases it's become a bit of a weird situation where the strategic guidance is almost free if you sign up to pay for a team of 20-somethings to follow a playbook and make some decks.
I've worked with various from McKinsey. The work is not that impressive. It's like having an MS Office expert, especially Excel and Powerpoint. The person is able to work long days, so after a workshop they spend a huge time to make it look nice again. Though one told me they have a separate department for quickly making presentations look "nice". Meaning, the consultant just sends it off to that other department.
Reading how expensive they are I'm glad McKinsey isn't used anymore.
The major reason they're hired is because of the McKinsey name (convincing others in your company). Not so much for anything else IMO. Maybe you we're doing great work but that's not the ones we saw (I saw various).
You don't hire strategic consultants because you don't know what to do: you hire them because you want someone else to tell your colleagues to do the thing you think you should do.
So, essentially it requires the same skillset as a fortune teller.
If I'm Corporate Big Wig I am not taking direction from some fresh-out or underling. I want to talk with the Partner -- a corresponding Big Wig who has "peer-level" status with me. We hash out the big-picture strategy, then the underlings do all the hard implementation work.
I parse it as you'll get the advice as coming from someone on the same level as you, not a subordinate/minion. So in theory it's level-headed, coming from a person not afraid to state things as they are, and you are covered if you act on it.
This kind of advice is hard to get for the C-suite outside their boardrooms (which may be biased).
I meant that C suite folks see McKinsey Directors as people at their level of judgement and skill who they can talk to in an open and honest manner to get advice. I’m not saying this is good/bad or right/wrong. Lots of CEOs want a consigliere with good advice who is on their side and that’s what they pay to get with a Director.
Thanks for the clarification. I think my mistake was interpreting what you said as the perspective of a hypothetical company and thus assuming you meant a peer-level company. It seems in general McKinsey is rather targeted at the C-Level.
It's typically targeted at someone of sufficient seniority that the cost of McKinsey is negligible when compared to the cost of doing the wrong / less optimal thing.
Or, in other words, if a manager makes a wrong decision then it costs the company $x00,000. If an SVP or C-level screws up, it costs the company $x0,000,000+.
I believe it is intended to mean "strategic advice from someone perceived as a social peer", meaning a high level important executive person, not a junior analyst.
Your mistake is trying to "parse". I am sure the phrase has meaning - it, presumably, means take advice from someone with the same social status - but at any deeper level it is quite meaningless. Don't bother. It isn't worth it.
Have been on the receiving end of several McKinsey engagements.
The work itself was generally not all that good. The knowledge of “experts” brought into meetings rarely contributed more than what a reasonably intelligent person could dig up on Google search results in an hour. They were also often farmed out on random staff augmentation functions that just annoyed the hell out of people. “Hi I need you to fill out this excel spreadsheet with 35 columns so we can put a presentation together... oh and if you could do that by 6 PM tonight that would be great.” That sort of nonsense so they could produce some nonsensical 50 page PowerPoint deck that nobody read.
There were a few decent people there but by and large value was not generated. As others have pointed out a major motivator seemed to be to provide some C-level exec with CYA coverage to claim that programs being implemented were based on the advice of outside “experts.”
In the two main cases I saw the McKinsey strategy ended up being a total disaster that seriously damaged the company and the C-level exec that hired them in both cases got canned as a result so in the end even the CYA concept didn’t really work.
Have worked with two ex-McKinsey consultants (hired as employees) and want to echo the observation that they tend to use their fast execution to generate excessive BS like large spreadsheets to win office politics.
In one case, the guy had built a small org to fulfill a need that we had previously outsourced to a vendor. The company was thinking of signing a large contract with the vendor and he created a barrage of 20-page spreadsheets to try to justify his budget. He made me sit with him for an hour to extract random cost estimates for one of his sheets. The vendor ended up turning into a Silicon Valley unicorn... exactly the sort of opponent he wanted I guess.
I think the trouble with McKinsey is they breed competitors who have never seen working products. If a product works, there’s probably a clear vision and a clear definition of value. When products are broken, winning office politics looks valuable, hence the McKinsey fascination.
Sort of a buried lede here. There's nothing shocking about overpriced, underdelivering consultants. But the bit about how the GSA is essentially profit sharing with said overpriced consultants at the expense of the rest of the government and taxpayers, via the IFF incentive structure, is pretty mind blowing. Another brilliant financial "innovation" by the Clinton Administration that's been quietly burning billions of taxpayer dollars to the end of significantly less efficient government for decades now...
McKinsey, Bain, BCG, et. al. are all extremely close to state and industry in all countries.
I'm from Norway, and every now and then someone will publish articles about the governments exorbitant use of consultants (McKinsey at that) for seemingly menial tasks which should be handled internally.
Truth is, these management consulting firms have some very good advantages to keep their business model going:
1) Their alma matter is spread all over the world, usually in the upper management.
2) They get highly detailed information from all sides, and can tweak their best practices accordingly.
3) They take the blame, so as others have mentioned, they're basically a million $ CYA insurance for both politicians and executes alike.
You could remove incentives like those mentioned, but I'm sure they'll find some other way to make money. They're so tightly integrated, and in so many places around the world, they probably have hundreds and thousands of strategies up their sleeves.
Yea, I don't doubt they would remain closely entangled with the US Government even if we changed the IFF incentive structure. But even so, the present incentive structure is particularly perverse because it's creating a positive feedback loop. The GSA has ~$40 billion yearly revenue because of the profit sharing model, which it is incentivized to continually increase, and the consulting firms don't even need to lobby for bigger contracts, the GSA itself lobbies for them.
The article gives short shrift to the reason this was originally put in place: to incentivize the GSA to aggressively outsource the government.
The GSA, like the departments they're serving, are filled by government employees.
Absent an incentive structure, a radical new executive commandment like "Outsource all the things" would get a yawn, papers filed, and absolutely no mass action.
And unlike private industry, I believe performance bonuses aren't really an option for government employees.
The flip side of job security is decreased initiative.
I'm sure they are, but do the European governments equivalent of the GSA also have incentives to actually drive up the price of consulting contracts they source for their governments? It's not just the coziness that is concerning, but the particularly perverse incentive structure that essentially makes the GSA an inside agent of the consulting industry.
Here in the UK we usually go for the traditional things: Consultants provide free assistants to ministers. Assistants advise that X is a superb idea. Government pays consultants for help implementing X, which they happen to be experts in. Then everyone impacted by X also hires the consultants to figure out what's going on. Later the minister leaves government and is hired for a £x00,000 salary for one day a week of 'advice'.
Had a lot of experience with McKinsey doing projects at my company at different levels I’ve been in throughout it the years. When it’s highly technical things like implementing a new technology you know nothing about or a new manufacturing footprint that is tangible to perform, they do good work. Anything “Strategic” or fluffy I find a waste of time. They are excellent salespeople and do a lot to calm the C-suite but I rarely see these fluffy items driving employee happiness or the bottom line after spending millions.
Doesn't seem surprising. If it's implementing a specific technical process, there are measurable outcomes that must be met, and your client will know whether or not you met them.
Senior leadership contracting an outsider to tell them how their own industry works and explain their place in it, though, is right up there with asking the Psychic Friends Network for career advice. They're just begging to be taken for a ride.
"Senior leadership contracting an outsider to tell them how their own industry works and explain their place in it" might be a straw man. Strategic consulting could just as easily be, "We're considering expanding into this new market that we don't know as well, and we're hiring a consultant who specializes in that." Or, a previous employer hired a consultant for guidance on how to prepare the company to be sold.
FYI that's likely due to there being different organizations inside McKinsey (and all the big consultancies) with very different goals and employees. Technical implementation work usually comes out of a different org than management/strategy consulting.
A question I have asked myself a few times as the guy who has to work out whether to invest in the guys hiring McKinsey: if you need McKinsey to do "technical" work for you then why am I giving you money?
Strategy is very useful...but, again, McKinsey know almost nothing about this too. In my experience, capital allocators are born not made. The idea that you can be a strategic genius without ever taking any risk yourself (i.e. the kind of person who goes to the colleges McKinsey hires from) is just wrong.
And the funniest thing about McKinsey is they are, apparently although not so much anymore, arch capitalists but largely exist to milk money from the principal-agent problem. McKinsey is the problem.
I was a technical project management consultant for a long time. The value that most orgs get from a consultant isn't really in the advice the consultant gives them, it's the political cover to make changes they knew they should make all along, but didn't have the social capital or the focus to make those changes until they had a person in a chair across from them.
Within any organization, you can have 3 or 6 important people pushing in completely different strategic directions. And it can be clear to any unbiased observer that there's only one good, responsible choice, but within your org that gets met with essentially "but that's just your opinion, man".
So you call in a consulting firm and they deliver what most of the people already know. The consultants don't need to be rocket scientists.
But afterwards, nobody can say it's just your opinion any more. It's now expert analysis that you paid good $$$ for, and everybody who disagreed before now basically has to get on board.
So it's not even necessarily political "cover", but almost like a referee that brings enough credibility to settle otherwise intractable internal disputes.
Also, this lets the CEO appear unbiased to all the people who "lost". So they can get on board with the new policy but not feel like the CEO shot them down personally, which is bad for morale, can lead them to quit, etc. (Just because they believed in the wrong strategy doesn't mean they still can't be super-valuable in the future in executing the right strategy.)
>Also, this lets the CEO appear unbiased to all the people who "lost". So they can get on board with the new policy but not feel like the CEO shot them down personally, which is bad for morale, can lead them to quit, etc.
The flip side is that it is also bad for morale for someone to be recommending a solution for some time, the recommendation is ignored, a consultant is hired, the consultant recommends the same solution, and then the recommendation is implemented. This is exacerbated when the consultant's fee is some large percent or maybe even a multiple of the salary of the person who originally recommended the solution. It makes the original employee feel worthless and doubt the leadership's ability to properly evaluate solutions.
As a consultant I like to flip this situation around, and let the internal staff who are already advocating for the direction I feel is best to be my biggest cheerleaders. Engage them early, let them know you're there to help them personally, and they'll help you do a better job when presenting your shared ideas to the brass.
It’s their idea, and the company didn’t have a process in place to let them present it except through your consulting engagement. Sure, if it’s a good outcome for the employee to work with you to get things implemented fine, but it still stings a bit that someone from the outside was trusted more than an invested employee before any traction occurred.
See also: “let’s hire a consulting firm to recommend an operating model to us.” (Often before we’ve asked our own employees)
I don't control the situation I've walked into and the events preceding, but I can control the outcomes. I'm not there to take credit for other people's work, but if management isn't on board with their ideas, I can oftentimes help to frame the message so it will be better received. If the "rank and file" is willing to work with me, I'm going to bend over backwards to make sure they have a seat at the table and that their existing work is recognized. I get paid either way so there's no point in trying to take all the credit.
I understand that, as the employee whose ideas have gone unheard, this whole situation may be perceived as a ridiculous waste of time and money. Sometimes it actually is. It might be management's own inability to discern good ideas from bad, a poor understanding of the business or technology problems they face, the solutions available on the market, or lack of trust in their own staff.
More often it's simply managers looking for a broader perspective from an outsider who has engaged other organizations with similar business and technology problems. I start with the understanding that they're sincerely looking to do the right thing until they give me reason to believe otherwise.
This is a really refreshing and inspiring approach, and it speaks to the importance of "tactically deployed empathy." You're one of the good ones :)
Do you have any recommendations on resources/articles/books, either for "rank and file" trying to ensure their messages are framed well, or for consultants or others who find themselves in situations helping ideas to cut through the noise?
I think it’s much more often managers trusting the advice that they paid $3 million for more than the advice that they’re paying $100k/year for.
It doesn’t matter that the $3M advice is given by someone barely more than an undergraduate. McKinsey wouldn’t still be a company if they fucked people over like that would they? (hint: They would)
I understand why you’re there, and I’m with you having worked as a consultant in this role a number of places. Once you’re in the seat there’s a way to do it right.
The OP’s point about morale impact,however, still stands regardless of a consultant’s intentions, I think. Further, the fact that shorter engagement consultants will not really understand your org even with outside experience which is hugely exasperating for “human capital”, “change management” or “just do X” IT improvement decks.
So many organizations go straight to the outside instead of trying to establish some healthy internal dialog around improvement. To me this is an anti-pattern, and happens to be hugely profitable for consultancies.
My boss' (we were internal consultants) mantra was "we can accomplish anything if we don't get hung up on who gets the credit". She is one of the best I worked for.
>The flip side is that it is also bad for morale for someone to be recommending a solution for some time, the recommendation is ignored, a consultant is hired, the consultant recommends the same solution, and then the recommendation is implemented.
Speaking as a consultant, my experience has been the opposite. I have walked into many organizations, said <obviously good thing>, and been hailed as a hero by the handful of folks who had been saying <obviously good thing> all along because FINALLY someone gets it! These are people who have been killing themselves in the trenches fighting this fight forever. When you finally show up and resolve it it's like the Army of the Dead in Return of the King. Fight's over, you can go bask in your "told you so" afterglow now.
It also turns out that most of the time, those people may have been smart enough to get <obviously good thing>, but were pretty bad at communicating the value of <obviously good thing> to anyone who mattered or at making a plan for how to get from <bad thing> to <obviously good thing>.
All of this is not to credit McKinsey or any of big consulting. They mostly provide a "signature method" to launder your your obvious observations into a glitzy powerpoint presentation to make it look like you applied rigorous testing and experience to what was really a cursory observation your entry level analyst made. All the people with actual experience are too busy killing themselves at business development and facilitating this "observation laundering" process to apply their brain power to developing actual insights.
When you are a junior staff you don't understand why decisions are made rather inefficiently. You only come to understand as you move up the ladder in the organization.
There is nothing stupid or evil about how "organization" behaves. It's exactly same as the society we all live in, just at a smaller scale. When you are in the position to make the call, you see that someone's idea may be as good as someone else's idea. How do you decide which idea is right? Do you choose one and fire the other with another idea? What happens when a wrong decision is made? This is the exactly reason why CEO or executives make compromises. They have responsibility to make sure that the organization survives no matter which scenario pans out. Junior staff often don't understand this because they can always move onto another opportunity when things collapse. As their career progresses, they also come to understand that you can't torch the field just because you don't like the crop growing there - it's much harder to find fertile land to begin with.
As people move up they either still know the business or they don't. Not trusting the people whom are running the actual business is IMO terrible.
The COO at the company I work for (recently left) could describe the daily work in detail. He could have conversations with any recently hired staff, various level of management, but also with the board, investors and customers. Lastly, he (amazingly) knew all the people he worked with before. No matter if that person 10+ years later is still in the same position (or not).
IMO having a good network, being able to communicate with various levels is highly beneficial. Your post seems to suggest some staff should not be taken seriously. That's utterly weird to me.
> How do you decide which idea is right?
From your post it seems one of the options is not to listen to staff. Further, junior staff won't gain experience if you do not let them develop.
> They have responsibility to make sure that the organization survives no matter which scenario pans out.
For one, why isn't this explained? Secondly, some decisions are bad without actually going into it any further. Then multiple years are wasted while everyone involved knew this from the start; they were just not listened to.
IMO regarding "scenario pans out": for some cases it's entirely true. But also sometimes it's not the case at all... just nobody listened to the people running the business and too much disconnect.
Yep, although I can't blame autocorrect. I simply spelled it wrong and lazily chose the first suggestion from the browser's spell checker without giving it much thought. Thanks for the heads up.
Ironically the situation is exacerbated leaving the person exasperated.
Speaking as a frequent commenter and author, I suggest this is teh system working as intended. There are not letters to the editor you put in in envelope and mail away.
When HN "published" your letter to the editor, it's not printed on atoms and distributed all over town, or mailed out to subscribers.
You can post a comment, edit it, and maybe even fix something based on feedback. I suggest that without being completely slipshod, it's better to go ahead and make a comment when you have a coherent thought.
The community will help you sort out any spelling, grammar, or attribution hiccups. I think this is a good thing for everyone, reducing friction and eliminating even self-gate-keeping.
Mixing up two homophones is not a tragedy. Someone not contributing because they fear that they'll be snubbed for getting a word wron? That's a tragedy.
I cut out the middleman and just pay people to comment for me entirely. This one cost me $34, one dollar per word. But punctuation is free so it is not a bad deal.
I've been in this position. The feeling of satisfaction wears off in a few minutes. My resume was updated later that week and I was on to the next adventure within two months.
And this was with a DR who stuck up for me and mentioned to the CEO directly that we paid a consultancy big bucks to tell us something a chorus of engineering team members have been saying for years.
I haven't seen enlightened management who appreciate people who are proven right. It is mostly interested in people proven wrong face consequences. Those who got it right are just doing their day job.
McK will bill $3 million, the 23 year old may get at best same as your $100k salary. Which makes everyone feel sour, esp the youngster for getting 3% of what their boss charged the client...!
If you look at entry-level consultant salaries at McKinsey and then divide by the fact that they're often working 7-day, 100-hour workweeks... you'll quickly discover that your "23 year old snot" is actually making around minimum wage on an hourly basis. They could be flipping burgers instead with a lot less stress.
The consultants aren't the ones taking the money home, the firm is. So don't blame the 23 year old. He or she is honestly just doing their insane best to pay off their huge student loans.
But federal minimum wage ($7.25) is a lot smaller than, say, the NYC minimum wage ($15), which is more relevant. At the NYC minimum wage, 100-hour work weeks get you about 80k a year, which is about the base pay for an undergraduate new hire at McKinsey.
Consultants fill positions with responsibilities that are short term. You have to ask yourself whether you are in a position that bears saying in what will happen from your long term viewpoint. If not then lobby the consultant to make it so e.g. by changes in operating model, creation of a Centre of Excellence etc. If there is a failure in hearing people ideas the presence of a consultant is as much a symptom as it is an opportunity.
I completely agree with this sentiment, and now I add any and all analyst responsibilities I come across to my desk just so that I can better articulate my recommendations in c-level business language
I know y’all want to repeat the whole thing about consultants we've all heard before, which sure, is “exactly this”, but the article goes much deeper, and is specific to the government.
Here, consultants are ripping off taxpayers because a Clinton-era rule financially incentivized the government to outsource work to “entrepreneurs”. This department is literally given a percentage of the money it gives to consultants.
GSA gets a cut of contract purchases that go through them but this makes sense because it incentivized them to be better alternatives than an agency’s own contract shops. Typically working through a GSA schedule like this can lead to faster turnaround and lower prices - nobody can charge the government more than their best commercial customer, legally, under this framework. If you don’t get value, put your own RFP on the street.
The incentive to get more dollars if you get more under management as a contract-service-provider does make sense. They’re not a monopoly on procurement in government, despite the author writing a book about monopolies.
Note: in some cases they have monopolies on some things in government, but not procurement.
Thanks for providing the background on how this came about, it makes a bit more sense now.
Could we get the same result by allocating the GSA a flat amount based on what they need and then penalize them by cutting the budget if no one uses their services, just like we do for other agencies?
No, the structural/legislative design of the GSA protects it from penalties because most of Gov't procurement is routed through its offices both Military (with caveats of course) & Civilian. The GSA spends money to reduce spending.
Interesting. I was discussing hypothetical possibly better arrangements, however, it's clear from the original article that the GSA doesn't currently operate this way.
A kickback is when you personally get reimbursed for your decision, which isn’t the case here. A government office is being funded by a fee on services rendered.
Money is one thing, but there's also just plain old information bias. Politics don't go away when the consultants come in. The consultants are going to be working closer with the group that brought them in. It's not uncommon in my experience for the 'other group(s)' to ghost the consultants.
Except the consultants don't always put forward the one best solution, they put forward the solution of the person paying the dollars.
I remember one awkward situation i was familiar with where two diametrically opposed groups both notionally hired the same consultancy firm to write their respective proposals/submissions.
No points for guessing whether the consultancy offered the same advice...
Funny in one sense, but only because if you don't laugh you'll cry...
See, the problem is that when companies get big they stop thinking in terms of values and start thinking in terms of equilibria.
A values approach to this problem would be promoting people with good taste, and then building a culture of acquiescing when they decide to step in. If someone doesn't like that, fuck 'em. Yeah it might hurt in the short term, but every time you let people with bad taste stall the show you erode your culture a little, until one day you come to work and realize that nobody can decide anything anymore.
An equilibrium approach is to say "well, a consultant will cost $3M/year, and potentially pissing off Alice and Bob and Carol and maybe Dan is painful and it's difficult to calculate how much that will cost, and $3M < UNDEFINED == TRUE so let's hire McKinsey".
I have a huge soft spot for economics, but the thing about equilibria like this is that they never account for externalities and long term costs, and $3M < UNDEFINED is just bad logic to use, and also it's spineless and cowardly and people should know better.
> Within any organization, you can have 3 or 6 important people pushing in completely different strategic directions. And it can be clear to any unbiased observer that there's only one good, responsible choice,
Or, there ISN'T a clear exactly one good responsible choice, it really is a matter of judgement and/or choice of priorities/values... and then whoever can exert the most control over the contractor can still get their way by getting the contractor to pick their side.
I have done lots and lots and lots of enterprise sales and consulting, and a big part of bringing in outsiders is to provide the illusion of social proof.
"Well, we had the experts in, and they found..."
That sounds really, really terrible when put so cynically, but the flip side of that is to view it as insurance. If you bring the consultants in, hoping that they will recommend Plan A, and Plan A is truly terrible, a reputable consultant will find a way to sell you on Plan B, by couching it as "A few adjustments to Plan A."
So in effect, yes, it is about making changes management wanted all along, but in addition to providing the illusion of social proof, you can also get an extra set of eyes to make sure that you don't completely footgun yourself.
Sometimes. Maybe. If the consultants are good at both analysis and selling management on adjusting their plans...
Agreed, and even if the consultants aren't more credible than the intern people, they at least have less bias than internal people, which can sometimes give their opinion a little more weight.
Another big part of it is liability management. If you're a high level exec and you make the wrong call, it's on your own head. If you hire a reputable expert and they make the wrong call, you're in the clear, even if it's what you would have done anyway.
This entirely misses the forest for the trees. And granted the author's bias gets in the way of his attempt to point out that forest. Their bias aligns with mine, but with less editorialization IMO the following would be more clear:
It's not that the work is or isn't valuable, or where that value is. It's that McKinsey charges 72% more than a competitor for the same consulting, and that there's a massive perverse incentive for public servants in charge of awarding contracts to pick the most expensive one.
From the article, bias left in:
Back in August, I noted that McKinsey’s competitor, the Boston Consulting Group, charges the government $33,063.75/week for the time of a recent college grad to work as a contractor. Not to be outdone, McKinsey’s pricing is much much higher, with one McKinsey “business analyst” - someone with an undergraduate degree and no experience - lent to the government priced out at $56,707/week, or $2,948,764/year.
...
And this gets to the second reason why McKinsey can charge so much, which has to do less with McKinsey and more with an incentive to overpay more generally. It’s more likely something called the ‘Industrial Funding Fee,’ or IFF. The GSA’s Federal Acquisition Service gets a cut of whatever certain contractors spend using the GSA’s schedule, and this cut is the IFF. The IFF is priced at .75% of the total amount of a government contract. In the case of McKinsey, since 2006, “FAS has realized $7.2 million in Industrial Funding Fee revenue.”
...
Does McKinsey do a good job? The answer is that it’s probably no better or worse than anyone else. I’m sure there are times when McKinsey is quite helpful, but it’s in all probability vastly overpriced for what it is, which is basically a group of smart people who know how to use powerpoint presentations and speak in soothing tones. You can just go through news clippings and find areas McKinsey did cookie cutter nonsense. For instance, McKinsey helped ruin an IT implementation for intelligence services. In the immigration story, MacDougall shows that the consulting firm encouraged ICE to give less food and medical care to detainees. That’s cruelty, not efficiency.
One could argue that $3 million per year for a university undergrad with no experience is not merely "72%" overpriced, but is in fact 1000%-3000% overpriced.
> there's a massive perverse incentive for public servants in charge of awarding contracts to pick the most expensive one.
I'm not quite following your logic here, could you elaborate a bit more? There's nothing prohibiting well-funded competitors from similar GSA approval, is there? My understanding is that this method is used to streamline contract awards...being listed on a GSA schedule means you've gotten a stamp of pre-approval (i.e., you've checked all the boxes to meet government contract requirements).
An overly simplified example would be that an agency can go from a whole soup-to-nuts bid process that takes, say, nine months to award. Or, they could select a contractor from a GSA schedule list of contractors and have it awarded in two months. Those numbers are arbitrary, but hopefully you get the point. Agencies have a variety of reasons they may want to hurry the process along, but over-paying isn't likely one of them.
Further, most government contracts go to "lowest bidder"; in order to be awarded to a higher priced contractor, they usually need to be part of a "best value" contract that is generally more difficult to justify.
I could be off on this, but understanding has been that the government is almost overly incentivized to award to the lower bidder, even when the lower bidder is the riskier bet.
Everyone replying answered this, I'd just like to point out that the answer to 'could you elaborate a bit more' is to read the parent article.
Another excerpt:
> In 2013, the GSA Inspector General traced a similar situation with different contractors. Managers at GSA overruled line contracting officers to raise prices taxpayer pay for contractors Carahsoft, Deloitte and Oracle. Government managers at GSA micro-managed and harassed their subordinates and damaged the careers of contracting officers trying to negotiate fair prices for the taxpayer.
Thanks, what I'm not quite getting is that the other contractors are listed. What seems to get lost is that the GSA doesn't select the contractors, they just list them.
The connecting dot that's missing is why agencies choose the more expensive option when it benefits the GSA, not the agency using their schedule.
For the perverse IFF incentive structure logic to hold true, it seems like GSA would be incentivized to approve rate increases across the board. Why just McKinsey?
In other words, the GSA sets the contract but not the order. If there are cheaper contracts available in place on the GSA schedule, I would think agencies are incentivized to choose the lower bid.
edit: mistakenly stated "agencies" instead of "contractors" regarding what gets listed
This is reading more and more like you're begging the question. One of the sibling replies that predates this comment by a quarter of an hour already addresses your specific missing connecting dot here. Not to mention the article itself, which is also well cited.
It's good. I suggest you read it. Interrogating my two sentence oversimplification of the forest is not a useful way to learn about this.
I get the impression some of the commenters don't really have experience with government contracts on either the public or private side.
The IG report points out real problems, but I think people are extrapolating too far because they don't truly understand how contracts are awarded via the GSA schedule. I think people are confusing being awarded a listing on a GSA schedule with an actual order. Being on the GSA schedule just means is there is an agreed upon price for a product or service. An agency still needs to chose that product or service before any money changes hands.
The GSA essentially produces a catalogue of products and services. Like the article mentions, it seems like the GSA allowed McKinsey to name their price and that is, as the article says, "honest graft". The article also implies other contractors are also listed, although they don't get similar preferential price treatment. So the GSA isn't down-selecting the number of "items" listed in the "catalogue" to force agencies into selecting the expensive McKinsey. It's just inflating the price of one item. What isn't covered is why agencies are selecting the more expensive item. To me, that is where the real corruption would be.
To play devil's advocate, the whole IG issue could potentially be attributed to a bad contracting supervisor who reassigned the contracting officer who was fighting against the price increase. The fact that the other companies were denied similar price increases indicates to me that it's not a cultural issue of "honest graft".
I get the impression you're over-simplifying this and grasping for whatever assumption you need just to try to make your point.
While some of us have run with my oversimplification, there are plenty of comments in this sub-thread about down-selecting. Your answer to that is a giant assumption on what the article (which again is rigorously sourced) 'implies'.
> The article also implies other contractors are also listed, although they don't get similar preferential price treatment.
In fact, the IG report[0] that is cited in the selection of the article I replied with has nothing to do with McKinsey, but a different contractor altogether. Reading comprehension is your friend here: "In 2013, the GSA Inspector General traced a similar situation with different contractors."
Agencies aren't necessarily selecting the more expensive item. As you point out, in most cases they have a mandate not to. They're awarding the bid to an already-short list designed to generate the highest IFF possible for the GSA.
If anything, my intent was to guard against the oversimplified conclusions by adding some nuance. I concede the point that it's larger than just McKinsey. But it seems like people are extrapolating to make a point that the government is forced into picking between just a few favored firms. That point is central to the author's larger theme about the politics of monopolies. The issue I have is, while there seems to be some graft, it doesn't mean there is a monopoly. In the same vein:
> They're awarding the bid to an already-short list
This makes it sound like the GSA is forcing agencies to select from a small handful of contractors from a list catered to make the GSA the most money. I don't think it's actually true and it seems like it's inferred from the article without evidence. There are literally thousands of vendors just in the IT Services schedule mentioned in the article[1].
What seems more likely is what another commenter stated. Agencies select the excessively expensive McKinsey because they are essentially buying social capital.
Edit: there’s actually over 13k vendors listed under IT services [2]
I was also wondering this. There seems like a pretty good case for the headline, but the more interesting question from the article is whether funding the GSA through some alternative (appropriations) would save the government money compared to the IFF. Which may come down to the kind of behavior the IFF incentivizes, whether it be corruption or self-serving yet legal optimizations. The information you provided about the base rate would have benefited the article by giving some idea of the scale on which the GSA operates.
This is actually quite a good question, and I don't understand why you're being given such grief for it. But I also might have an answer. TL;DR: the government isn't paying McKinsey for services rendered. It's paying for bureaucratic capital, which is a Veblen good.
There is a confluence of two dynamics going on here. The first is that once a contractor is listed on the GSA schedule, you don't have to justify their price. The process of getting listed on the GSA Schedule is supposed to mean that the government has already vetted the goods being offered and the price they're being offered for. No further competition is needed. You can simply place an order for the goods or service listed and like magic it sails through the government procurement process.
So the next question is, if contractor A and contractor B are both listed on the GSA Schedule as providing a given service, and contractor A is twice as expensive as contractor B, why would any rational individual choose contractor A? And the answer is, in this case, you aren't paying for the advice. You're paying for the social capital needed to make the advice stick. If all you wanted was the advice, you could certainly go to contractor B and pay them twice minimum wage to get a 23-year year old college graduate to give you advice. But that advice would not carry the weight you need to get upper management to take it as gospel, because you clearly didn't pay enough money for that. Nobody cares if you pay $50,000 to get consultant advice and then ignore what they told you.
So what you do instead is pick the name with the most cachet out of the entire list, given that you don't have to justify the price on a cost-benefit curve any more since it's already been GSA approved, knowing full well that they'll give you identical advice but now with a million-dollar price tag attached... and that fact will carry enough weight to get the changes they recommend all the way up to your agency director, who'll either sign off or have to take an incredible amount of public heat explaining why he/she didn't take the advice his/her own agency spent millions of dollars to get.
Basically, a straightforward application of the Washington Post rule.
That is the way the article reads, but I think it reaches too far in it's conclusion.
Take the example schedule used in the article:
>McKinsey asked for 10-14% price hike for its already expensive IT professional services (which is a catch-all for anything).
The IT services schedule lists over 13,000 vendors [1]. McKinsey is listed on this schedule under four categories: 132-32, 132-50, 132-51, and 70-500. The most relevant to the article is 132-51, "IT Professional Services" which has 3,872 other contractors listed besides McKinsey. I personally wouldn't consider that evidence of the GSA restricting the schedule or indicative of a monopoly. This is what led me to my previous question as to why an agency would select the more expensive McKinsey given a reasonable amount of competition.
The ghostwriting brought up is a genuine concern and I would be in favor of investigating other funding mechanisms outside of the IFF pay structure. However, the author admits they are selling a book about how politics and monopoly are intertwined. Speaking of perverse incentives, I worry that the conclusions drawn are too heavily biased to support the book thesis rather than objectively looking at the broader context.
The part I don't understand is what's keeping competitors like the Boston Consulting Group from listing similar services on the GSA schedule at a better rate.
The article talks about the IG finding evidence that the GSA improperly approved cost increases for McKinsey. This makes sense in regards to perverse incentives but I didn't see anything about the GSA shutting out less costly competitors from the schedule of approved contractors. Since the GSA generally doesn't award contracts, I would expect to see some evidence that McKinsey was unduly favored in the schedule listing for stronger evidence of corruption.
It's the fact that the affected staff deliberately didn't follow policy, and chose the inflated bids regardless of any others, that drives this.
There's no reason at all why BCG can't submit better rates. But that ensures the corrupted decision making will have the awards go to someone else. No one was preventing other bids, they just had the selection process locked up.
McKinsey wasn't favored in listings, only in the off-the-record selection bias.
I think maybe people are conflating being awarded a contract on a GSA schedule to a purchase order. A GSA contract award is just a listing on the GSA schedule.
The GSA schedule mentioned in the article has 3000+ other vendors offering similar services. They all have been awarded GSA contracts. However, no purchase orders are attributed to those contracts until a government employee looks through that list of thousands of vendors and selects a specific vendor at the contract rate. The GSA doesn't actually select the execution of the contract, they just list the contract as part of the schedule of approved vendors.
It's like listing an app on the Google Play Store that charges 30%. That 30% is like the IFF from the article. Is it unethical if Google allows you to specify a really expensive app price? You could set your app price arbitrarily high like McKinsey but your app price is a moot point if nobody selects your app and instead chooses your competitors. What's interesting is that agencies do select McKinsey, indicated they at least perceive those costs are justified over the competitors listed on the same schedule.
The GSA awards the contract which sets the price for the services/products. The contract just sits there until another agency decides to leverage it. (i.e., the GSA isn't spending money executing the contract or forcing other agencies to do so either).
That contract isn't executed until another agency decides to use that service or product. The end-user agency benefits from a streamlined procurement process but does not receive any percentage of the contract. They are generally de-incentivized from selecting an expensive contract from the schedule, all things being equal.
Contractors influencing an unfair price is still a problem, but much less so if there are other contractors offering comparable products/services at a better rate because agencies are forced to buy the expensive option. What I haven't seen is discussion or evidence that the price inflation is systemic across a schedule that would elevate this to a full-blown scandal.
As stated in other replies, this doesn't appear to be nearly as outrageous as the article is interpreted in this discussion unless the GSA is inflating costs across the board. In the absence of that, end-using agencies can just select the cheaper option.
What was eluded to by another comment is that the more expensive contract may be selected if it's perceived to carry other social value above competitors. (e.g., "If it's coming from the prestigous McKinsey, it must be accurate")
HN in the last 3-4 years has had the discussion quality of a mediocre subreddit (there are plenty of subreddits which are better than HN), but with an extreme air of self-importance.
I sometimes wonder what the demographic looks like, since most replies betray 1) lack of actual domain expertise and 2) the humility required to recognize (1)
That's also Epic's (the healthcare software vendor) big value proposition. Their software is okay—among an industry filled with shit, their turd is at least polished.
But their delivery model is incredible: they make customers woo them (shouldn't vendors be doing the wooing?), and they have a prescribed way of doing things if they decide you're worthy to purchase their product. What you get in return is a constant cudgel of "this is the Epic way" to yield when talking with practitioners who are used to doing things their own way (especially doctors—nurses are more flexible and pragmatic, in my experience). This can be especially useful when you have a system of multiple facilities that's grown through acquisitions, with each facility having decades of accumulated practices that aren't quite aligned with your other locations.
Very interesting. I'm part of a project to unify EHR systems for a number of giant hospitals in my area...all under Epic! The way they're selling it is "One patient, one bill, one record." There's all these Epic people running around, and they're all quite young and presentable, and they probably make some _killer_ slide decks. The funny thing is, our institution (a state body) actually hired some Deloitte people for their expertise. They told us to stick with Cerner, from which we're migrating. Nope, not gonna happen, we're too invested in Epic!
I mean, honestly, for a medical record system, if you allow a million doctors specific customization then as a company you are going to be in for a bad time. Epic is basically the Borg at this point as well. Any customization should come from a consultancy via some well defined interface.
I have been on the "client" side of consulting engagements and a consultant myself. I think you identify the central truth of consulting: that usually we're not bringing any magic knowledge to the table.
However, I think there are other circumstantial values that appear alongside the one you identify. I find that consultants not only provide cover, but also provide a level of focus on non-immediate, but important, problems that doesn't otherwise materialize on its own. Nobody wants to be seen wasting the highly paid consultant's time so you often get people paying attention when they might not otherwise. There's also setting the stage for what ends up as a sort of professional group therapy sessions and with the consultant as a mediator. I think you touch on that, but maybe I see some greater emphasis on that bit.
Consultants have usually seen 10-20 successful versions of what you are trying to do and 3-4 failed versions materialize over the last three years.
The difference is usually whether the companies involved had the money and focus to mostly follow the consultant’s plan or whether it gets bogged down in customizations and committees of internal stakeholders at the company.
I’ve also seen a couple stall because 3rd party vendors over promised and totally dropped the ball but it’s usually the vendors that the company was locked into before the consultant came on board or some niche product with no good vendors in the space.
This is why consultants hire Ivy League graduates. To create a myth of "Ivy League" "quality" justifying the decisions they are hired to recommend.
The other thing management consultants do is industrial espionage -- they go into a company to learn how it work, and then advise other companies on how "industry leaders" operate.
> The other thing management consultants do is industrial espionage -- they go into a company to learn how it work, and then advise other companies on how "industry leaders" operate.
This one doesn't get mentioned enough, I think. They'll happily sell you an outline of what you need to do to be in line with "industry best practices", where those practices are all the things your competitors are doing better than you (and guess what they'll sell those companies if they spot anything you're doing better than they are? Where do you think they learned about those "best practices" in the first place?).
It's basically a kind of weird, expensive, inefficient, unofficial business process collaborative R&D program.
Basically they need a bunch of people who are really good at ingesting a ton of data, analyzing it, and summarizing it.
Turns out those are exactly the same skills involved in writing academic papers, which gets you good grades.
So these people really are statistically disproportionately the people in Ivy League schools and similar who also got high GPA's in those schools.
So there's some reality behind what you call a myth.
(Obviously you can still be awesome at that and not have gone to an Ivy League school, that goes without saying.)
Edit: in response to a comment below... also you can of course be at an Ivy and not be a good writer too. Which is why consulting firms tend to have extremely selective hiring on campus through interviews with many rounds where most applicants get rejected, and pay huge attention to your GPA at college.
Not really. To get into an Ivy League school you only need to perform well in high school and have the right connections and/or guidance to build the perfect resume.
With college grade inflation and the fear of blowback from failing well-connected ivy students, the only guarantee you get from hiring an average Ivy League student is that you have someone who can write high school essays well. The typical undergrad graduate still barely has any critical thinking ability.
If you want people fresh out of school who can ingest data, analyze it, and summarize it, you want good grad students. Good grad students come from non-Ivy schools more often than not.
The only industries that care about Ivy League at this point are the ones where connections matter more than intellectual ability. Everywhere else has recognized that the pedigree is not a useful signal (see Google’s hiring data on this).
Is there any empirical evidence of the claim that ivy league and similar grads are objectively better analytical writers than the mean college grad, and if so, how much better? How is that quantified?
The only conclusion you can always make about someone who graduated from a prestigious college is that many people will find this impressive. That's not to say this has no value, clearly it does.
> Obviously you can still be awesome at that and not have gone to an Ivy League school, that goes without saying.
One can also graduate from an Ivy and definitely not have these skills.
Although one might think that these folks are not consultants at McKinsey, I humbly suggest that this is incorrect — there are plenty of folks who McKinsey brings in for their social capital and/or social skills. Certain athletes and certain folks who know how to socialize with a given class of clients are just as valuable as the grinders, perhaps more so since the “face” of the organization leads to sales and client retention.
The longer I live, the more I've realized it's a myth.
The person/human is significantly more important.
After working with duds from top schools, I'm not sure why it happens. How do they get accepted? How do they graduate? How did they get past interviews?
it's the political cover to make changes they knew they should make all along
No argument here. Every single time that I've been in an organization that has brought in management consultants, the results of their work were almost exactly in line with advice that we had been feeding upper management for some time.
It's infuriating to have the right answers to solve problems while people at the top ignore good advice and then spend huge amounts of money to get that good advice repeated to them by other people.
Even worse is when upper management acts like the consultant advice is the first time they've heard those recommendations.
Absolutely this. It baffles me how many people can understand and repeat ad nauseum "nobody ever got fired for buying IBM" but don't get the role a consultant plays in corporate strategy.
In france, its a classic move by big companies to have mbb formalize what they already know: a need to restructure which unfortunately involves firing people. Its easier to justify restructuring because mbb said so than because the company says so for some reason ^^
Cost Bias: A fallacy of ethos (that of a product), the fact that something expensive (either in terms of money, or something that is "hard fought" or "hard won" or for which one "paid dearly") is generally valued more highly than something obtained free or cheaply, regardless of the item's real quality, utility or true value to the purchaser.[1]
I think it's psychological. With capital expenses, the decision to spend a lot of money tends to be a discrete event/process, while operations usually grow slowly over time. We place inherent value in big purchases—after all, I decided to make the purchase, so it must be valuable.
> Its easier to justify restructuring because mbb said so than because the company says so for some reason
Is it a legal thing? European regulation tends to be quite aggressive when people get laid off, so I imagine that an external assessment helps give some cover for that.
No it's a people thing. People want a scape goat and McKinsey delivers those by the billable hour. Especially in near government institutions.
Firing is somewhat more expensive, but if you want to close a location it is just an X million more not anything really complicated. Bigger chance the employees will be organized and fight in court, but in reality if management wants you out you will be.
The consultants are for the people who stay. You fire some group A, then you fire your consultations then group remain feels "Safe" again, when the bad consultants are gone.
It's both. In France for example, there isn't a sane and legal way to unilaterally lay off a permanent worker.
However there are provisions that allow a company to lay off whole percentages of its workforce if the company is planning to face financial difficulties or similar. This has to be justified somehow so better get external reports to cover your ass.
High end consultancies have sold oursourcing that decimated the UKs IT orgs, and are now selling in-sourcing, whilst in reality many are just selling outsourcing to them with new buzzwords like DevOps and microservices.
It might be what the businesses wanted to do all along, but I'm not sure it's what they "knew they should be doing".
I don't subscribe to this viewpoint. You have to have the clout to bring in the consultant in the first place. Now it may be a buy vs build decision and you are looking for advice on the buy side but I don't see it being about political cover when your "reputation" would be tied up with the consultant.
There are many projects where the build vs buy decision itself is politicized. Political rifts between business and IT is a story that is just as old as business software itself.
Super common scenario:
* The business thinks IT is too slow to implement, and doesn't understand business needs
* IT thinks the business changes priority too much and doesn't even understand their own business processes, and it's leading to technical debt because the demands of the business are half-baked
* So, the business brings in a consultant who says they will do everything they want, without any push-back, in half the time
Two years later, the outsourced work is half-finished and what has been delivered is near-total garbage. All the best engineers have left the team and the business is scrambling to hire someone competent to cleanup the mess.
Sometimes a company with a competent IT department hires a bad consultant. Sometimes a company with an awful IT department hires a good consultant. Roll a dice.
I think it is important to avoid figurative language and stereotypes and develop an argument based on specific examples. To clarify my original comment, the assumption is that if you have to have clout to bring in the consultant (either by fiat or consensus) that does not absolve negative consequences nor provide political cover if a project fails.
Nobody in this thread suggested it would absolve negative consequences or provide political cover if a project fails.
It gives someone the political cover to make changes beyond their typical power that they knew were necessary.
Many large organizations are compartmentalized into divisions that act almost as independent sub-organizations. In these organizations, someone might have plenty of clout/budget/authority to bring in a consultant in their division, but not enough clout to convince a cross-divisional decision maker without some help.
For example: The President of MegaCorp North America thinks the Director of MegaCorp Widget Sales is whiny and asks for too many budget increases without a plan to the President's standard. Meanwhile, the reality is that everyone in MegaCorp Widget Sales knows they need this new piece of software. So, the Director of MegaCorp Widget Sales uses $100,000 of his existing budget to bring in some consultants to do a strategy plan for phase 1. Those consultants write up the same things that the Director and his employees have been asking for, but they put it in a shiny proposal with plenty of buzzwords. This satisfies the President sufficiently enough to award the budget increase for the phase 2 implementation project.
Again, I don’t subscribe to this viewpoint which was my original comment. You can dress it up with hypotheticals but I don’t agree. Regardless of success or failure I think that “political cover” is a stereotype and not useful. Roll a dice as you say.
There's another piece to it too: they are able to legally sell trade secrets between organizations. They update their "knowledge base" every engagement and become "specialists" in the field.
Exactly. Early in my career I learned that a consultant is almost never hired by an organization, a consultant is hired by a faction within an organization who already knows what they want the deliverable to be.
Yup, definitely true. I just got paid a fairly handsome sum for a one week gig at a large organization to write a report about a technical change. It was clear what the outcome was supposed to be and that the manager (who was just taking over some new orgs) already knew what they wanted to do, and just needed an external report to both bolster their decision and CYA. Luckily, what the manager wanted to do is also what I would have recommended, or it could have gotten a bit awkward.
Yeup, this. I worked at a former company who paid 7 figures for a re-org (lay-offs), and it was run mostly by 25 year olds, with the occasionally pre-recorded video by a big-co partner. Was really interesting dynamic that felt more like "Up in the Air". But it was obvious they did it for liability reasons and so they wouldn't have to take the blame for the lay-offs since it was the consultants who told them findings.
One of my profs in business school said that 1/3 of the time you hire consultants is because you know what you want to do but you need a fall guy in case it goes south. You're paying a premium to offload the liability.
An additional aspect is focus. By being expensive and not part of the normal reporting hierarchy, a consulting firm working on a project can have the luxury of focusing on just that project. This is a huge benefit.
That's just one type of consulting. Perhaps a very important type but governments tend to hire them for far more mundane reasons as well: government workers at some places rarely (never) get fired so it's more efficient to hire a consultant for a while instead of being stuck with a lifer even if the consultant is four times the cost.
That's not always the case. Sometimes they bring a consultant in with no intention of doing anything that gets suggested, so they can point to how much serious effort and money they spend on the topic.
This calls for a P2P model of consultancy then: Company A acts provides neutral consultancy to Company B (in a unrelated field) and Company B or C provides neutral consultancy to Company A.
If we’re including the other consulting firms, it’s not just that. These companies effectively also function as a contracting platform ie a “AWS” for on demand employees instead of servers
On the positive side, I do think that if we repeat this truth enough times we can decrease the "cover my ass" value of consulting and help more orgs make change autonomously.
$1M for a six week “EM plus two” engagement is on the high side, but it’s about par for the course for most McKinsey contracts. The standard is usually $500k-$1M for that kind of engagement. I think this is kind of a non-story for anyone who is actually familiar with the consulting business model. The brand is all McKinsey really has, and they are very quick to offer free engagements to protect the brand if true value isn’t being delivered.
I find it absolutely INSANE that highly specialized organizations like the NSA rely on McKinsey to direct their future operations.
These people have intimate knowledge of their organization and culture, shaped and hardened by years of challenges and learned experiences. What can they possibly think bringing an outsider in to do a complete overhaul will solve!?
Why can they not apply their own experience to solve problems in their own organization!? The proliferation of consulting firms baffles me. It seems like you’re just paying people for critical thinking.
Unrelated: All of my classmates that went into consulting joke about how absurd the field feels to them.
Having worked in the field for a few years after graduation myself, I've come to think of "strategy consulting" as mostly bureaucratic arbitrage.
8 times out of 10, the organization knows exactly what needs to be done. However, big organizations have thousands of stakeholders with competing desires. Steering the ship in a different direction can have negative consequences for thousands of people.
Due to this problem...even the people in charge struggle to do what needs to be done without being pitchforked out of the place.
BCG, McKinsey, etc. provide the perfect cover. Their mythical brand image and powerpoint sales abilities allow management to do what needs to be done, while offloading the risk onto a 3rd party. If the changes don't work out, you can fire the consultants! The management was just following the advice of the outside experts.
So what then is the actual role management plays? They're paid the big bucks (absurdly so in the typical large US corporation), and yet largely they hardly make clear decisions, frequently "didn't know" about decisions that go catastrophically wrong and get golden handcuffs and parachutes to sweeten the do nothing but create anodyne PowerPoint decks with vapid goals. And when real decisions need to be made, yet more big bucks are paid to outside contractors to tell them what most everyone in the company already knows needs to be done.
Sigh ... the incentives and consequences for the top "decision makers" in a modern corporation are corrupt to the core.
I'm not sure how it is in other countries, but at least here in the US there's this cultural tendency to want to crush anyone who's made any kind of mistake, or even made the right decision but happened by chance to have had something go wrong in a way that could have been avoided with a different decision, if they can be blamed for it, but also to accept paper-thin excuses for why a person who might be held responsible can't, in fact, be blamed for it, and once blame has been so laundered enough times we just forget about the whole thing. It's completely weird, really expensive, and ethically gross. And it's present at every level of our society, just about everywhere.
> In the immigration story, MacDougall shows that the consulting firm encouraged ICE to give less food and medical care to detainees.
I guess this is one big reason companies hire consulting firms - a consultant can act as a mouthpiece to say things you want people to hear, but not say yourself. A kind of moral laundry, absolving insiders from blame. Similarly they could recommend a risky business plan that someone believes in but doesn't want to stick their neck out for - if it fails, blame the consultants and move on.
>It seems like you’re just paying people for critical thinking.
That's exactly what it is. Unfortunately most organizations, probably even ones like the NSA, really struggle with doing any kind of critical thinking on their own. This is especially true when trying to decide on a future direction for the org: the org itself is most likely biased to just doing things the way it's always been done. In that regard, having an outsider's perspective, especially one that has also done work at other similar organizations and has taken note of all the various ways other orgs do things and knows what works and what doesn't, can be quite beneficial.
I completely disagree with this. McKinsey is often used to sell an existing idea. Plus for really boring MS office work. They don't bring in any new ideas.
The company I worked for had various McKinsey consultants; this is pretty much what they were hired for unfortunately. Various consultants (not all) were also way too young (+lack of work experience) to suggest they had that magical knowledge.
They basically just sell what some people in the organization already intend to do. McKinsey has the name, plus the people are usually better focussed on the political game that's in a big organization. There's not much magic going on though.
Getting an outsider perspective - sure. That I can get behind, it can obviously be helpful.
But getting an outsider to tell you what to do? A complete overhaul? That’s a leap. You’re going from getting perspective to getting directed by an outsider. A recipe for disaster, and from what we’re seeing here, that’s exactly what has happened.
>You’re going from getting perspective to getting directed by an outsider
Yes, but it's not like this outsider has no idea what they're talking about. This outsider has decades (sometimes centuries) of knowledge working with organizations exactly like yours, and they have seen what works and what doesn't. When McK goes to consult for the NSA, they likely bring along with them experience from doing similar projects for the CIA, or DIA, or DoD. Your own organization likely doesn't have much insight into the successes and failures of your fellow (sometimes competitor) organizations, while a consulting company does, and they can lend you that knowledge.
At least, that's what is supposed to happen (and indeed it does happen if you are diligent about the specific team of consultants you hire). I have increasingly witnessed a lot of deception and bullshit in the consulting industry, so it's completely understandable to me why people are skeptical.
" the org itself is most likely biased to just doing things the way it's always been done."
This is powerful, and true, because often nobody has the power to change anything.
This is why 'funder led' companies can have an advantage, founders have that 'mythical status' that enables them to move the needle on projects. Of course this can be bad as well, but hopefully the bad ones fail early.
Even 'good companies' are full of cruft and bureaucracy - Google, Apple, MS, FB no exception. It seems the 'good companies' are able to move the pieces they need to move quickly enough to steer towards market needs, knowing large chunks of the company will be left behind.
Think of all the Apple apps that have only marginally changed in a decade, and how many zillions of devs are working on them.
Easy, McKinsey and their ilk give zero shits about office political stuff, just the principal paying the bill.
In some orgs, people working in the org cannot defy certain non-cooperative people. The consultants can come in, demand the data they need, and immediately escalate to the principal.
The director of the NSA gets a modest salary of $180,000. That's roughly the comp of an associate at Mckinsey or entry level at a FAANG. I doubt that they can attract the top talent with the amount they're paying.
If the underlying assumption is that you can mainly attract top talent through high salaries / compensation.
I think we need to acknowledge that "top talent" is going to go other places, driven by other incentives. The academic world is filled with "top talent" that work for a measly salary, compared to the industry, because they have more freedom - and can work on what they want.
Or you have the military, which operate with a caped base salary for around $180k for their 4 star generals / admiral. It's hard to argue that the top 0.1% talent in the military are any worse than their peers at high-paying companies.
People choose different jobs / industries based on their own incentives. The smartest and most driven person I know is currently a post-doc earning $70k while doing cutting edge research in Deep Learning. He could easily be making 5-6 times that, if he just joined the industry...but he's content. /anecdote
Something is clearly going wrong if the NSA thinks it's worth it to pay for $700/hr consultants from McKinsey. All the three-letter-agencies think Palantir is cutting edge, yet anecdotally, I hear that they're charging millions of dollars for some fancy charts and rudimentary data science.
Of course, there will always be some hyper-dedicated public servant types who are top of the line, and I'm sure that the director of the NSA is one of them. However, I doubt that the average rank and file senior engineer at the NSA is as competent their counterpart at Palantir because otherwise, they could just do all their work in house.
I can only say, based on my own short experience as purchase manager, that the process looks something like this:
1. The company needs to expand / upgrade / whatever, and there's a meeting on how this should be tackled. More often than not, in large companies, this part is also delegated to some consulting firm.
2. Report from said firm comes in, you have a meeting, and either go with their recommendations, or something else which has come up internally.
3. Upper management is convinced that using outside consultants / contractors is the way to go, because it's lighter on the company (no hiring, etc.)
4. Upper management gets wined and dined by the largest players, and are convinced its better to go with the most establishes firms.
Often times they have good relationships with these firms from beforehand, and don't even bother checking out their competition.
I've been myself in the situation where we spent months on coming up with the best deal possible, only to get steamrolled by executives, because they wanted to go with someone they knew - and pay many multiples extra.
In the end, it's the tax-payers or shareholders that are paying for this kind of stuff.
As someone who has been a underpaid .gov person, that’s not really true. When you factor benefits, pensions, etc, the compensation isn’t that bad.
You also have the mission. Contributing to the defense of the country, ensuring that people get social services or that the roads are safe is more rewarding that making some billionaires some more cash!
The IFF referenced in the article seems like a great example of how good-intentioned changes to incentive structures can have very warped outcomes, potentially years later. These kinds of effects keep popping up for me, even in industry contexts (e.g. stack ranking).
Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied? How many "hops" of influence can you get away from the change before the effects are impossible to predict?
Or does it just boil down to "ask very smart domain experts to think about the problem very hard for as long as you can afford to pay them"?
In terms of lawmaking, the usual way to deal with this problem isn't with front-end analysis, but rather by adding a "sunset provision" (see https://en.wikipedia.org/wiki/Sunset_provision). That's a clause in a bill that requires it to be re-authorized periodically in order to stay in effect. If a law with a sunset provision ends up causing unintended consequences, then lawmakers can let it die just by doing nothing. That's an easier lift than you get in a bill without a sunset provision, which can only be killed if you can convince a majority of lawmakers to actively kill it.
Sunset provisions aren't nearly as widely used as they probably should be.
If I were writing the constitution for a representative democracy today, I think it would include mandatory sunsets for all legislation.
Yes, this would lead to the legislature spending a lot of time just reauthorizing existing legislation, but I would argue that the majority of new legislation being passed in modern representative democracies would be better off as revamps of existing legislation anyway.
Would you apply the same rule to a software codebase? Perhaps if nobody can be bothered refactoring that code, it’s not needed anymore and should just be deleted?
Sunset provisions are a pain for anyone who administers the law or makes plans for the future based on it. Laws that depend on the current date are bad, and stable legal institutions are good. That’s why we incrementally “reform” the law, rather than periodically replacing it like some depreciating asset.
This assumes you don’t have gridlock in the House/Senate, so it’s a bad idea.
We already have govt shutdowns when we can’t pass a budget, imagine if a law that legalized gay marriage was allowed to expire, or one that granted people health care or immigration status.
Even if a non-discrimination law only expired for a short period of time, that would be enough to do real damage to people’s lives.
Other countries have solved this issue simply by automatically forcing an election if a budget is not passed. Their representative are somehow able to overcome ideological differences and pass legislation once their jobs are on the line.
If the civil rights act requires over 1/2 votes to extend it and it doesn't gather that much support, maybe it should sunset. The budget votes are different because they require 2/3 of the votes which is what allows the minority party to block it from passing.
The problem with this is that there may be laws that are highly valuable for poor people (e.g. minimum wage, workplace safety, building/fire codes), but irrelevant for rich people/politicians and thus end up way way down on the priority list compared to, let's say, budget laws or the next big tax cuts package.
A mandatory sunset provision can only work if the legislators act with the interests of their country and constituents first and their individual pockets second, which isn't the case any more in many Western democracies. The US are just the most obvious example where Republicans blocked everything Obama tried to pass through.
Gridlock problems are particular to two party systems. A modern constitution would also include voting methods that don't result in a two party system.
You could also reduce the risk by the constitution itself being exempt from sunsetting and enumerating crucial rights and services therein.
Anyway it's not something that's ever going to be implemented anywhere, so it doesn't really matter if it could work.
The fundamental problem with incentives is that they're asymmetric in nature: The incentivee has a lot more time (and direct motivation) to come up with a way to game the incentive than the incentivizer can spend when setting it.
The only real way to address that is to revise incentives on a frequent and regular basis — but who wants to do that? Certainly not legislatures.
That's true. I found a lucrative opportunity recently and identified and removed the bottlenecks that were throttling my earnings through bad processes on the client's side. As a software and network engineer, I found much faster ways to get things done. I am working on an app to make it even faster.
That is what flat rates do - the side willing to work for a flat rate optimizes the processes to make that rate work for them.
Now everything gets resolved in one service call, but my effective hourly rate is high enough to work around every inefficiency. I have an incentive to find everything that is wrong with that location and fix it regardless of what the original service call description says. That is just a starting point as far as I am concerned.
If that company invested a small amount in producing technical training for field technicians and bolstering staffing at their inexpensive offshore call center, I would have had meaningful competition. I imagine if they hired consultants, they would see that as a report.
I hold unique institutional knowledge like undocumented direct phone numbers to relevant people at client organizations that I have a very big incentive not to share.
I might just be dense, but I don't fully understand how the IFF was supposed to work. What was its intended effect? Is it just a tax that the contractors have to pay on spending the government's money, to disincentivize them to spend that money?
It was intended to make the GSA self-sustaining in budget terms. Under the old system, the costs of running the GSA came out of the Federal budget. The goal back in the '90s was to reduce expenditures in order to cut down the budget deficit. IFF let them push the cost of running GSA off of the Federal budget, by pushing it onto the budgets of the vendors winning GSA contracts.
>Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied?
Yes, look for cases where A is rewarded, but B is expected:
That's already in practice - there are dozens of competing think tanks that churn out pretty deep critiques of legislation before it comes up for a vote. Whether for better or worse instead of the legislation being edited accordingly the criticisms are usually dismissed as "Republican/Democrat talking points".
the general topic would be systems theory / systems thinking. Lots of little scraps of knowledge of these kinds of knock-on effects are scattered around in various fields and disciplines, but I don't know of anywhere where they're gathered in one place for broad consideration or application. Not yet, anyway.
The piece I don't get is why the agencies didn't revolt. I get how it's a warped incentive for the GSA but isn't the GSA working at the behest of agencies like ICE? Shouldn't ICE be up in arms that their budget is being squandered?
Because the agencies were (and still are) told that they must use GSA first. The theory is that GSA market will provide a competitive price or that the GSA sole source will be a competitive price.
> ... less [to do] with McKinsey and more with an incentive to overpay more generally. It’s more likely something called the ‘Industrial Funding Fee,’ or IFF. The GSA’s Federal Acquisition Service gets a cut of whatever certain contractors spend using the GSA’s schedule, and this cut is the IFF. The IFF is priced at .75% of the total amount of a government contract. In the case of McKinsey, since 2006, “FAS has realized $7.2 million in Industrial Funding Fee revenue.”
> ... The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time. In 2013, the GSA Inspector General traced a similar situation with different contractors. Managers at GSA overruled line contracting officers to raise prices taxpayer pay for contractors Carahsoft, Deloitte and Oracle. Government managers at GSA micro-managed and harassed their subordinates and damaged the careers of contracting officers trying to negotiate fair prices for the taxpayer.
> How did the GSA get such a screwed up incentive...?... [T]o become more entrepreneurial as part of its “Reinventing Government” initiative, Bill Clinton’s administration implemented the Industrial Funding Fee structure. It worked in generating money for the GSA ... so well that Congress’s investigative agency found in 2002 that the GSA stopped having to rely on Congressional appropriations.
I don't remember seeing HN articles about McKinsey before this month or last. Now there are three articles about McKinsey on HN, including one that says that the Houston Astros' sign-stealing exemplifies the decline of a McKinsified America. (Or maybe it's the Astros that are M'd.)
McKinsey comes up because they are an elitist consulting firm and HN is somewhat of an elitist forum. I am using elitist in a good way, although there’s certainly elitist attitudes on here.
As someone who might join a Big 4 in IT consulting soon it’s nice to see what McKinsey is up to. It’s much nicer to see accountability for one’s actions.
Sundar Pichai is also McKinsey alum, so in a way McKinsey has Google now.
People are also starting to take note of some of the bad things McKinsey have been involved in like their role in Enron (CEO was McKinsey and it was their 'sandbox'), role in U.S. Immigration and Customs Enforcement (ICE), role in Saudi clampdown on dissidents, support of authoritarian regimes and the Great Recession 2008 financial crisis and many, many more scandals or questionable actions. [1][2]
> McKinsey is said to have played a significant role in the 2008 financial crisis by promoting the securitization of mortgage assets and encouraged the banks to fund their balance sheets with debt, driving up risk, which 'poisoned the global financial system and precipitated the 2008 credit meltdown'...
Overall, like the other management consulting firms, McKinsey and the like can be used to justify some anti-competitive/anti-consumer/anti-employee but pro-board/executive or authoritarian policies and introduce plausible deniability for the directors that employ McKinsey.
Some have said McKinsey is a "culture of corruption". [1]
> McKinsey's fingerprints can be found at the scene of some of the most spectacular corporate and financial debacles of recent decades. — Ben Chu, The Independent (2014)
> Defenders of McKinsey claim that the firm merely advises, and is not a decision-maker.
Plausible deniability on both the company and consulting firm, they deny liability for all parties involved in a McKinsey action.
> Nevertheless, since the end of the 20th century, McKinsey has been either directly involved in, or closely associated with, a number of notable scandals. Reuters describes these incidents as indicating "not bad apples, [but] a culture of corruption".
McKinsey has been generally in the news of late as Pete Buttigieg has gotten more traction in the polls because that's that he credits for much of his experience. Its probably not HN specific.
Matt Stoller has been pumping out issues about government contracting over the past few months, and they’ve all been popular on HN. McKinsey is the archetypal management consulting firm and the role of consultants is an important part of any discussion about the concentration of market power. Often comment on these issues concerns the tech companies many HN readers work for.
Presidential candidate Pete Buttigieg has been relatively outspoken about his time working at McKinsey (although he can't discuss specifics due to an NDA), which may have sparked a wave of 'what does McKinsey actually do'
This is true for most NOVA contractors. In 2010-2012, Accenture and KPMG was pretty new to Federal IT Auditing and most of their consultants had never done anything IT related in their lives.
It's ridiculous that accounting and tax firms like Arthur Andersen was able to rise out of Enron's scandal and were able to create catch-all IT divisions and win those contracts from the US government when they had no expertise.
> The consulting firm’s sway at ICE grew to the point that McKinsey’s staff even ghostwrote a government contracting document that defined the consulting team’s own responsibilities and justified the firm’s retention, a contract extension worth $2.2 million. “Can they do that?” an ICE official wrote to a contracting officer in May 2017.
Nope. This is illegal under the FAR. If they're doing it, they should be barred from Federal contracting.
For what it's worth, I think this author gives the GSA a bad wrap based on the analysis of one individual. GSA has to do a LOT of work to award and manage a large number of contract vehicles that allow everyone in government to purchase goods and services at negotiated rates (which also saves them hundreds of thousands on hiring their own contract staff). The fact that the funding fee incentivizes GSA to help people spend more money is not necessarily a perverse incentive - it gives them the incentive to ensure their contract vehicles are effective vs. a normal procurement.
McKinsey have messed up government policies all over the world when it comes to McDonaldization of Society. They are using simple measurements to model how complex societies should work, unfortunately this is only works for McKinsey and their partners.
Sounds a bit like a lot of "machine learning" actually (when it's done blindly).
But do you have any specific references for the kind of thing you're talking about? It sounds plausible, but if I had a dollar for every time something plausible-sounding was completely wrong...
I don't want to personalize the comment. But in Europe there are many examples where McKinsey implement a model to fix the money distribution problem. At the end, society gives up the culture and ideals. While the ppl get short handed the partners get a bonus. Still, I think this is mostly a problem of bad public leadership that is not approachable.
It's not just governments. Large corporations too frequently use McKinsey to make recommendations for things they want to do anyway (e.g. layoffs or restructuring). From the client executive's point of view, the money spent on a McKinsey contract effectively purchases credibility for these decisions.
My favorite McKinsey story: Back in 2005 UBS (big Swiss Bank) brought McKinsey in to figure out how to expand more rapidly in the US. The consultants suggested, "Hey, you have almost no sub-prime exposure. Everyone's trading this stuff! You gotta go in, and in a big way! It will certainly be a pillar of your US strategy."
So UBS did... The result was one of the most severe debt writeoffs of the Great Financial Crisis.
Lost me at the end ... took an otherwise detailed and nuanced analysis and concluded it with a broad generalization that smooths over all of the detail and nuance.
“At any rate, at some point decades ago, we decided that most political and business institutions in America should be organized around cheating people. In this case, the warped and decrepit state of the GSA leads to McKinsey-ifying the entire government. Mr. Clinton, you took a fine government that basically worked, and ruined it. McKinsey sends its thanks.“
As another comment here mentioned: outsourcing of decision making (consulting) is endemic to bureaucracies, whether that's in government, education or elsewhere.
Has research been done on the amount of money saved/wasted on these consulting firms? Have any economists tried to evaluate whether or not these consulting firms provide any value at all beyond political cover for bureaucrats afraid to make or incapable of making decisions?
From my brief experience working in a large University's bureaucracy and seeing how consulting firms took advantage of the school, I believe the public is being swindled by companies like McKinsey and others. If private corporations want to spend money on consulting firms without any tangible benefits, fine. But taxpayer money should not be wasted on these corporate vultures.
There's a lot to unpack here, but the general gist is that McKinsey is overpaid for mediocre services. It's hard to argue against that, and McK in particular does have some insanely unjustifiable rates, but I do think the author has a bit of a misunderstanding of why consultancies are hired in the first place.
To be clear, when a consultancy like McK puts a 23 year old analyst on a project, the $50k/week bill isn't just paying for the knowledge in the analyst's head. The analyst is really just a vehicle to deliver the expertise of the actually-experienced consultants and knowledgebase of the entire firm. The experienced consultants don't have the time to sit and write out the powerpoint deck, so instead they throw as much knowledge as they can at the analyst and the analyst is the one who synthesizes it into something digestable by the customer. Is it worth $50k/week? Fuck no. But it is at least worth recognizing that you are getting more expertise than a sole bachelor's degree.
Second, as someone who has both worked as a consultant at major companies like McK and worked on the other side of the table, and as someone who has long despised the consulting profession because of its overpriced bullshit, I think the author would be surprised at how effective even a measly 23 year old can be. As a consultant, it would drive me insane that my company was billing me out at $700/hr to help implement an IT system when all I was actually doing was reading and regurgitating the software's documentation and making sure that the client didn't ignore it. Surely the client could do this themselves and save the $700/hr, right?
It took me a long time to realize that the answer to this question was actually no. The typical HNer will probably be surprised (and saddened, if you're like me) to realize that the average corporate worker bee is in fact not competent enough to do the most basic tasks, such as refer to documentation, without hand-holding. It is an unfortunate reality that sometimes a well-educated and well-vetted 23 year old analyst can do things much better than an 20-year industry veteran. Companies do know this, and this is what they are paying for, much to the chagrin of the rest of us.
As a last note, the author mentions the possibility of just hiring an IT professional to do the work instead of hiring a consultant. This is something I also see come up a lot in consulting discussions. The reason this isn't done is because hiring an employee full-time brings on a lot of risk to the hiring company. It can take months to hire someone, many more months to train them, and then if they don't perform up to snuff, it can take years to build up a case to fire them, all the whole they are sitting on your payroll taking up budget. A consultant, on the other hand, can be hired in a day, trained in a week, and if needed, can be fired in a minute. You pay a premium for the agility to hire and fire them quickly, but that's the entire point.
> that the average corporate worker bee is in fact not competent enough to do the most basic tasks, such as refer to documentation, without hand-holding.
I think a lot of this ability is selected-out or outright discouraged in a lot of environments.
If the new employee starts fixing broken things, they’re often crushed for stepping out of line.
And god help them if the problem becomes worse (caused by them or not) when it wasn’t their job to touch it.
New employee: why do we do X in Y way?
Veteran: because that’s the way we always did it
Reminds me of when I made my own way-finding signs for visitors. While my director loved it and wrote me a thank you card, that didn’t stop janitorial from ripping them down. While they were 100% helpful, they were 100% unapproved.
I still oil door hinges and clean some of the uncleaned areas myself. And fix other things that aren’t “my problem”, but it’s a fine line.
I would take a different perspective. The issue is not 23 year olds being better than others. It's the fact that the 23 year old from McKinsey comes in with incredible political capital equivalent to whoever hired him at the top, and that enables him to be multiple times more productive than someone else. Most organizations are... slow.
I agree especially on the implementations front, when success or failure of a huge implementation project hinges on a single (or small team) of full-time employees, it's often better to just pay a premium to consultants to minimize the risk of a botched integration and have some written recourse, rather than firing an incompetent team and suffering the consequences of a botched project at the scale of a large company.
> The analyst is really just a vehicle to deliver the expertise of the actually-experienced consultants and knowledgebase of the entire firm. The experienced consultants don't have the time to sit and write out the powerpoint deck, so instead they throw as much knowledge as they can at the analyst and the analyst is the one who synthesizes it into something digestable by the customer. Is it worth $50k/week? Fuck no. But it is at least worth recognizing that you are getting more expertise than a sole bachelor's degree.
How much do those more experienced analysts make per week? I would think $50k per week would be enough to buy me the undivided attention of _all_ of whatever team of people at the consultancy has the expertise I need.
It seems like people do really well for themselves after they leave McKinsey, do you think this is mostly a function of the cache having McKinsey on your resume brings? What skills are really developed as a management consultant?
McKinsey data scientist (basically a consultant who codes). Can answer this after following some colleagues who have left and seen many technical teams at clients for my general role.
Most data scientists... don't know what to do. And most clients... don't know what to do with them. So they do little data science projects and build dashboards that few people use. Coming out of McKinsey you can quite confidently say you've learned how to identify top problems, organize a project around it, and solve it in a fast timeline with realistic solutions. That's pretty much gold. It's really useful to be able to say you've worked with c-suite leaders.
Finally, it's probably a function of just fast growth internally. You gain responsibilities much faster at McKinsey than at most most companies. The company invests in your development more. And when you leave, you get weeks of paid time off to search for a new opportunity.
This only really applies to really large companies mind you, but I would say:
1) You don't need to work your way up the approval chain. Your idea is already going to people with the authority to act on it.
2) You have significant ability to just call people and get them to share their data and domain knowledge
3) You have little risk of long term problems from saying something that someone doesn't like, so long as its not the person who hired you.
4) The pace is probably very very fast relative to the speed of most large orgs. Probably not sustainably fast tbh. It's fine because it's several weeks of hard focus and then a bit of a break.
If you feel like you're doing fine and are answering important questions then you probably are doing just fine and your company's data culture is healthy. IMO people who build analyses that few people want or need are acutely aware of it.
Nope, there's many other data science shops in McK, although the branding is beginning to merge under the QB umbrella.
I see little difference. Sometimes it's an EM + 1 or 2 data scientists. Sometimes its an EM + 1 data scientist + 1 or 2 BA/Associates. We solve similar problems, its just the data science people tend to solve it with data and the traditional consultants solve it with interviews and whatever. That's not a swipe at them either. There's a significant quantity of problems that can be easily uncovered by talking to someone who knows the answer but can't get the business to acknowledge it OR by spending a week churning through data to discover it yourself. You might feel better with the hard fact base in hand, but doing those interviews and using the traditional consultant skill set tends to make you far more targeted and efficient in scoping and planning.
"QB" I think operates a little differently, whereby they get the data and tend to do more stuff on their own with dedicated modelers, data engineers, and designers. More "I am the expert here, leave me be". (Also not intended to sound like a swipe. That's a reasonable point of view sometimes).
> What skills are really developed as a management consultant?
Hard to answer because "management consultant "(MC) is really an umbrella term for a lot of different roles. One MC might gain quite a lot of experience analyzing the financials of mergers & acquisitions, and so they would develop those skills and be valuable to a company looking to acquire another. Another MC might specialize in projects doing market research for athletic clothes. A third might specialize in finding inefficient processes in a supply chain.
Outside of niche specializations like that, most MC firms (especially the 'elite' ones) work you really hard and expect you to be able to adapt very quickly to new types of projects. This requires a lot of dedication to your work (and willingness to sacrifice non-work obligations) and the ability to learn new things very quickly. If you survive that work for a few years, then, having something like McKinsey on your resume is more like a certification that you are willing to work hard and can learn quickly, which is obviously valued by a lot of companies.
Basically. It's a filter that proves someone who worked there is smart and hardworking. It also explains their virtually universal requirement for an Ivy league (or similar) background.
You don't hire overachieving 4.0 HYPS grads that have "played the game" since they were 14 because they're the smartest guys / gals around, you do it because they'll work 18 hours a day if needed. It's a great indicator of at least two things
1) The person is able to learn quick, and pick up new things very fast
2) The person has exceptional work ethics, and will do what's expected. You're driven enough to not lose motivation.
And then you set them to do menial grunt-work like fixing spreadsheets and formatting PP slides.
Brand has an impact, but I'd guess most alumni probably came in as already competent and ambitious, even if the projects during their tenure were mundane.
The rank and file of many orgs have no thoughts of their own.
But the really shocking thing is how executive level management as so many organisations can't either. Most execs have no idea what their strategy is, they're just the 'responsible people who are in charge'.
FYI in some cases, 'the Firm' may actually have deep knowledge in a particular area - such as 'fast moving goods' or whatever . So the company is actually 'buying' the exposure the consultants will have had to other folks in their industry.
But the prices are boondoggle insane, out of touch with reality.
I'm sorry but no case is made to support the idea that taxpayers are buying generic advice. Let's agree that the service buys a fresh college grad assigned full time. The grad might be a customer contact collecting and organizing customer issues before presenting them to internal subject matter experts, and then presenting those findings back to the client. I'd like to hear evidence to support how the service is fresh college grads simply using what they learnt in college and their chutzpah, which is what the article implies.
> The grad might be a customer contact collecting and organizing customer issues before presenting them to internal subject matter experts, and then presenting those findings back to the client
This might describe how technical consulting is done at big firms where the output is a product, but when the output is strategic documents... this is grunt work done by the front line analysts with a generic playbook. There is no "behind the scenes" strategy work like there is for dev. Maybe there is a lower analyst or intern that doesn't interface with the customer.
FWIW this is the direct opposite of my experience working in both strategy and technical consulting. When it comes to dev work, it often actually was just a 23 year-old new grad writing code with little oversight (when I was 23 I actually wrote a lot of code that was reviewed by no-one, tested by only myself, and is probably still being used across a couple of F500s). Strategy work on the other hand was almost always reviewed and revised by several tiers of higher-up, more experienced consultants before being delivered to the customer.
Respectfully do you work in the field, can you talk more to how you are able to do the work all on your own? Or is this an educated guess? If so, I doubt the service contract they were able to write was done by a fresh grad, I guess they are sourcing an internal legal team, and I suspect they have more internal experts to call on. It's common in legal and financial consulting to have junior staff do on-prem time consuming low value work that is a big waste of time for experts, who can be called in to join meetings remotely etc.
I guess it doesn't change the value proposition much, but the whole "23 year old recent college grad" thing is a little overblown. Sure, a college grad like that might land somewhere with a title of "Business Analyst", but the higher the consulting contract the more likely it's some "distinguished" or at least older person with a shoe shine and 30 years of absorbing all of the management buzzword trends.
I just had a round of them come through where I work, and 3 of the 4 met this description. The 4th was the younger "college grad" and they made him actually click the power point slides forward.
On glassdoor it seems like that recent grad business analyst is taking home ~100k [1]. One of the articles earlier this week about McKinsey as "Capital's Willing Executioners" [2] talked about how the firm spreads a specific capitalist ideology.
Given that (in this instance), the company is charging a 30x markup for the labor of that recent grad business analyst ... should we be thinking of McKinsey analysts as misguided exploited workers?
I worked as a management consultant. When my firm billed my time out at ~$10K/day and paid me ~$150K/yr (a ratio of ~20:1), I didn't feel exploited. That ~$10K/day covered way more than just my time.
* My time spent on business development & sales (most of which don't pan out)
* My time spent on discounted or free projects performed to seed future sales
* My time spent in training & development (probably ~4 weeks in the first year)
* The time of managers spent training & developing me
* My support staff (industry analysts, Powerpoint designers, internal experts)
* Multi-million-dollar IT investments to build tools and databases to support me in my work
* A couple first-class flights a week
* A few nights a week at expensive hotels
* Lyfts & Ubers everywhere
* All meals expensed
* The firm's partners working the case
* New employees for whom we don't bill
* Fees for market reports
* Fees for expert interviews with industry executives (in some cases we'd do dozens of interviews a week, paying ~$1K/hr each)
* Office overhead (rent, power, insurance, etc.)
* Office support staff (HR, finance, janitors, etc.)
* Profits for the firm's equity holders
(Now a few of these expenses were billed separately I believe, but it shows the wide breadth of costs that a firm has to cover.)
None of this opportunity would have existed without the firm, the network, the brand, and the partners. It's amazing to think that all I had to do was show up and work, and in exchange, I would get paid a high salary, get experience working with senior executives, get a prestigious brand on my resume, and accelerate my career relative to most career tracks. I don't regret the job, nor do I think it's surprising that there are crowds knocking on the door trying to get in.
Looking at other industries, I wouldn't be surprised if a cashier at a grocery store made less than 5% of what they put in the register each day. And I wouldn't be surprised if a oil driller got paid 5% of oil that they extracted each day. Even if we're the ones touching the revenue, we're still a small part of what it takes to run a big business.
While I understand the frame of thinking, you'll have a difficult time convincing any advocating party that someone making $100K+ is 'exploited'. Multiple examples probably can be found across a number of industries
I don't know much about this article, but Matt Stoller wrote one of the most garbage articles about Netflix a while back, where he claimed Netflix has a monopoly on online TV show production.
I think he lacks analytical rigor and basically bangs on a keyboard with strong emotions.
Having said that, McKinsey consulting services really are 90% a finishing school for Ivy League liberal arts majors so they can move onto real work.
from the article >>> "In other words, the agency of the government in charge of bulk buying isn’t paid for saving money, but for spending too much of it. The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time."
And yet there are people refusing to accept that fact, I met one of them. And that guy also failed to realize what an immense cash flow advantage government has against private sector companies. Government wants to spend money as soon as possible. That alone is a huge lever in procuring hardware. Not sure why they don't use it.
I plan to read it at some point, but I was really turned off by Stoller's relentlessly cloying self-promotion in his newsletter. I get it, he writes well on important topics, but he could use a bit more subtlety in pushing his stuff.
Who's going to be the tax payer's hero in that government department? This squeaky wheel would effectively defund his colleague's cush jobs and likely his or her own. Not going to make a lot of friends but it will save the tax payer a fraction of a cent.
Many years ago, David Owen wrote about this--though the customers mentioned were in the private sector--in an essay called "Punks in Pinstripes". It suppose that it may have been collected in The Man Who Invented Saturday Morning.
The power point thing is so important though and consultants make amazing power points. It’s so important I’d hire a power point master just for explaining to executive all the concerns and issues me and my team have over our IT practices.
It's depressing to think that there are people who aren't already aware that corporate consulting is pure BS, but I guess there are and so I guess it was worth writing it.
Pete Buttigieg worked at McKinsey after his college days...which was only 10-15 years ago. I wonder if/how he was exposed to unethical practices and grafting like this...
Only recently discovered Mr. Stoller's media/reporting, and I have been absolutely impressed with his weekly mailing. Can highly recommend subscribing.
Title’s terrible, I read it as taxpayers pay $3M a year per U.S. college graduate. It’s not even the original title, “Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor.”
The actual article title is "Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor," don't know if it was edited or the poster just chose something different.
I've noticed a lot of posts on HN recently get their titles changed after posting, and this one will as well because it is quite incorrect as you pointed out.
This type of stuff is endemic to all bureaucracies.
Managers are too scared to make decisions so they look outside in order to justify any decision.
Its maddening as these are the very people who are paid to make these types of decisions, yet they dont. And due to their employer being a public entity, they are not held to any real standards nor limited by such pesky matters as profits and productivity.
It happens in local government,it happens at the state level and its absolutely enormous at the federal level. The waste is astounding, as are the underlying causes.
Its so simple to solve, yet as long as we have the fox's guarding the hen houses, it will remain.
TL;DR organizations respond to incentives and the incentive laid out in the legislation for the organization responsible for setting prices the government pays is to spend money, not save it and McKinsey takes advantage of that.
Considering that a big player like McKinsey can't systemically overcharge the government and get away with it due to how noticeable it would be in terms of sheer dollar amount there are likely be other smaller players that are making even more absurd profits on their services and I wonder who they are since IMO their existence is more worthy of investigation than some BigCo walking right up to but not over the line drawn by the law (as BigCos do). This is not to say that the incentive structure shouldn't be changed to categorically prevent all this.
Being "on the schedule" means you've already been pre-vetted and deemed a legitimate vendor by the GSA. For government agencies, doing business with a contractor on the GSA schedule lets them skip a whole bunch of approvals and paperwork that they'd otherwise have to do if they just pulled in a vendor off the street.
Getting on the schedule can be a long and bureaucratic process, but once you're on it you have a privileged position when it comes to winning government business. So if you want to sell to the Feds, you really want to be on that schedule.
If you know anyone personally who works at McKinsey, you know them to be brilliant, humble, hardworking, and unfailingly likeable. Think Pete Buttigieg. It's hard to square this with the company's public reputation in anti-establishment screeds.
I guess you meant this to be sarcastic, right? Doltish, vainglorious, lazy and unfailingly boorish is what comes to my mind when I review the McKinsey people I've met.
That'd all go for about 80% of my exposure to same, can confirm. Doltishness and lack of self-awareness re: the same sorts of things the consult on for others were especially surprising to me.
This really bothers me. I understand the point of the article is that they're charging a lot of money for an inexperienced consultant and no bias (discrimination) was meant, however, age is irrelevant. There are a lot of very "experienced" 23 year olds, as long as you're asking them about the work they've done. There are a lot of people in their 50s with very little experience (as their actual experience is irrelevant to the topic at hand or their actual experience has been very repetitive).
I think we need to be a bit more conscious of unconscious bias towards age (in either direction).
By definition a 23 year old can’t have 25 years of experience in anything, even tying shoes.
They can’t legally have worked full time in the United States for more than 7 years.
Unless they are a wild outlier, they can’t have an advanced degree and significant years of professional experience doing anything.
You kinda have a point but sensitivity to age discrimination towards the young in this sort of statement is a bit of a stretch imo. It’s also shorthand for absolute realities of time and space.
Edit: Age discrimination also isn't perfectly symmetrical because:
If you’re young, you will very likely get to be old one day.
> There are a lot of very "experienced" 23 year olds
By the definition of the word--no, there aren't. You can have talented, capable, and driven 23 year olds, but not "very experienced." Given a working adults life spans approximately 40-50 years, a 23 year old claiming that title is laughable (exceptions being musical prodigies and athletes who have trained from childhood).
It's hard to imagine a recent college graduate understanding the machinations of corporate entities enough to give meaningful advice about how to run more "efficiently". It's a bit like when a SV company is promising to revolutionize farm equipment and the founders have no background in agriculture - weirder things have happened, sure, but you can see why people are a bit skeptical.
Yes, it's obviously a bit unfair because sometimes untainted eyes can be the most beneficial, but hopefully you can also see why there's a bit of skepticism.
There's a lot of truth to this, but the fact remains that a 43 year old will have twenty additional years of experience in life and various fields, not merely a narrow subject. This can improve a project's chance at success.
For an example young folks can relate to, rate your current self against self-five_years_ago for an important task.
In all kindness, let me ensure you that experience is rarely gained until your forties. Early on we may feel on top and hold important positions, but it is not the same thing as understanding the other side. To gain wisdom, not there yet, probably take another 20 years.
I fully agree and believe it would be much stronger to say that this is a consultant with "x months of experience" than "23 years old" which could mean anything from 'worked in this field since I was 16' to 'hired yesterday'.
This isn't a matter of unconscious bias. People can (and, arguably, should) have a conscious, intentional bias, against inexperience, when it comes to selecting for skilled work. Age drops off as a useful proxy for experience once someone's been in the workforce for some time, but as others point out, a 23 year old is still going to be definitionally inexperienced in most domains.
