 "The Firm:The story of McKinsey and its secret influence on American business")
THE FIRM: THE STORY OF MCKINSEY AND ITS SECRET INFLUENCE ON AMERICAN BUSINESS
Author: Duff McDonald
Publisher: Simon and Schuster
Pages: 390
Price: Rs 599
What is common to McDonald's and McKinsey? This is not a non sequitur question. Apart from the Scottish prefix they share, the two American companies, each a legend in its own field, are of comparable vintage, grew enormously in the second half of what has come to be called the American Century, became global leaders of their activities and are now generic symbols of their products: hamburgers and management consulting. It is perhaps no coincidence that McDonald's was one of the chief examples analysed in the all-time management best-seller, In Search of Excellence (1982) by two McKinsey consultants, Tom Peters and Ben Waterman.
Duff McDonald, a New York-based business journalist, traces the history of McKinsey & Company from its beginnings in 1924 or 1925 to the present in this thoroughly researched and most engagingly written book. If I had my way, I would make it required reading for every aspirant to management education not just in India but the world over.
The 1920s witnessed enormous industrial churn. Henry Ford's use of the assembly line followed engineers' discovery of unit operations and processes. These were logical culminations of Adam Smith's prescient conclusion that division of labour was the key to increasing human productivity.
James O McKinsey (1889-1937), a largely self-made accounting professional, was a "wizard with numbers." He started advising Chicago-based companies newly transiting from family ownership to management by hired, often professionally-qualified, employees in the mid-1920s about budgetary control and efficiency. This was the beginning of the organisation that bears his name to date. He advised Marshall Fields, the troubled manufacturer and retailer, to concentrate on retailing and cut all other activities. The company invited him to oversee that plan, which he accepted, leaving the consulting to his colleagues.
The reorganisation and cost-cutting he recommended have become the defining traits of the McKinsey advice, but it would be misleading in the extreme to think of it as the sum total or even the bulk of its wisdom. McDonald succinctly summarises the firm's singular contributions:
"McKinsey was a major player in the efficiency boom of the 1920s, the post-war gigantism of the 1940s, the rationalisation of the government and rise of marketing in the 1950s, the age of corporate influence in the 1960s, the restructuring of America and the rise of strategy in the 1970s, the massive growth in information technology in the 1980s, the globalisation of the 1990s, and the boom-bust-and-cleanup of the 2000s and beyond... Today McKinsey is a global success story [because] modern American management technique - which McKinsey has played a part in both creating and disseminating - has distinguished itself as much by its innovative ability as by its sheer might."
Global giant it certainly is, even in these uncertain times that challenge international capitalism as never before. Its 2012 revenues of $7 billion, over 15,000 employees, 500 partners, 100-plus senior partners (directors) and close to 100 offices all over the world give an idea of how large it is. Though other consulting firms may have larger revenues, the gold standard of the business with the highest fees is unquestionably McKinsey, despite some dimming of its halo in the last five years.
Marvin Bower, an early acolyte of James McKinsey, headed the firm in its most critical period of the 1950s. He evokes a demigod-like respect in the company even today, 10 years after his death at the age of 99. He retired voluntarily on reaching 65, sold his shares in the company to existing partners at book value (a fraction of what he could have got in the market) and set the ethical, behavioural and even dress standards that have served the firm well. He emphasised professionalism and knowledge over money, distance from clients and discretion in selecting assignments (engagement in company parlance). He devised a process of selecting the chief executive from amongst senior partners that parallels the selection of the Pope from amongst the College of Cardinals (no wonder McDonald cannot resist the temptation of calling McKinsey the Jesuits of management!) and imposed a three-term (nine years) tenure limitation. Only one of the eight incumbents who followed him turned out to be a bad fish, in McDonald's assessment.
McDonald's account is far from an unqualified hagiography. In fact, it is a well-balanced history, warts and all. It adequately summarises the many critical analyses, and lists McKinsey's failures as well. The firm failed to correctly understand the key technological strengths of the Japanese car makers and led General Motors astray. Its survey of wireless telephones indicated only a niche market of less than 1 million handsets by 2000, which made AT&T abandon its early-start advantage. Most glaring of all, it was an enthusiastic cheerleader of Jeff Skilling's (a McKinsey alumnus) Enron shenanigans before its collapse and just barely escaped the dissolution fate of Arthur Andersen.
This last egregious lapse occurred during the tenure of the aforesaid bad fish, one Rajat Gupta (1994-2003), whose fall from grace is abundantly documented in the books by Sandipan Deb and Anita Raghavan, but not his rise in McKinsey. McDonald says that it was far from spectacular.
In his 21 years at McKinsey, Gupta contributed exactly zero articles to the firm's treasured knowledge bank. Among the many sins of commission and omission McDonald lists, the chief ones are excessive concern with incomes, questionable selection of clients, acceptance of equity in clients as part payment, and a disproportionately large share of failures - in other words, the reversal of most of the vaunted McKinsey values.
McDonald devotes nearly a third of the book to these unsavoury aspects, which not many in India know of. It would need a separate essay to do justice to them. I had likened Gupta to Goethe's Dr Faustus in my review of the Deb book, but it seems now that this would be far too charitable a parallel. Goethe's observation, "The deed is everything, its repute nothing," is all the more appropriate
The author taught at the Indian Institute of Management, Ahmedabad, and helped set up the Institute of Rural Management, Anand
