McKinsey and its peers need a new strategy. And some humility

SINCE the birth of management consultancy at the turn of the 20th century, people have questioned its usefulness. Bosses of firms that hire consultants are paid lavishly to define a vision and corral their teams into achieving it. Why would they ask a bunch of jet-setting know-it-alls who have never run anything but a spreadsheet calculation how to do their job?

Over the decades, however, consultants have proved their worth, and not just because their clients are lazy, incompetent or scared of making difficult decisions.

In 1990, McKinsey, BCG and Bain, the three elite strategy advisers, had a few thousand staff between them. Today they employ around 90,000. Over the past decade, their combined revenue has more than doubled. And they do seem to offer useful advice.

Recent research finds that companies which hire strategy consultants experience a significant and sustained improvement in productivity relative to those that do not. Now, though, the industry is heading for disruption. If consultants are to stay useful, they need to rethink what they do.

The value of consultancies lies chiefly in their experience of similar problems at other clients. Situations a chief executive might encounter only once in a career, such as a big merger or relocating a factory, are rarely unique.

Some critics argue that consultants who swan in and out of clients tend to offer elegant but impractical recommendations. But that view is out of date.

In recent years, the strategy trio have moved deeper into helping clients implement their advice: for example, by helping them digitise their businesses. And they are increasingly tying their fees to the success of their projects, thereby aligning their interests with those of their clients.

For the bright young things these firms hire, the experience seems to pay off. Many of the world’s biggest businesses, from Alphabet to Coca-Cola, are run by alumni of the elite three consultancies. And our analysis suggests that these companies outperform their peers.

As the age of artificial intelligence (AI) beckons, however, the corporate world’s consiglieri face an uncertain future. Plenty of senior partners quietly scoff at the idea that the technology will be anything but a blessing for an industry that has mastered the art of jumping on every new management craze.

Already, companies struggling to make use of AI have turned to the strategy advisers for help. For their part, the consultancies have built bots trained on their intellectual property that can perform much of the grunt work behind their projects.

But what happens when AI models also start producing the kinds of alliterative three-part frameworks those senior partners so proudly present? In recent years, the firms’ core business of strategic advice has grown robustly alongside the push into implementation; soon, it may come under strain.

Meanwhile, fast-growing technology providers such as Palantir are also helping clients deploy AI systems, which could force the traditional consultants to retreat.

To remain relevant, the industry will have to adapt. Generic ideas recycled from client to client will become of little use.

To compete with ever smarter AI models, the approach of training up generalist advisers will have to give way to earlier and deeper specialisation, including in the art of managing change. That, combined with the need for fewer minions to do a senior partner’s bidding, will require the firms to rethink whom they hire and how they nurture them.

To a degree, these changes are already under way at the elite trio. To help clients implement their ideas, they have hired thousands of specialists, such as coders. BCG’s success in using these experts is at least part of the reason why it is on track to overtake McKinsey as the largest of the three firms.

Time to “swot” up

To succeed in the decades ahead, however, a more extensive overhaul will be needed. As the firms expend time and energy reinventing themselves, they will have to accept that there are some problems, particularly those relating to technology, that others are better placed to help their clients solve.

All this will require humility, something that does not come easily to many in the industry. Consultants often speak of the need for transformation. Now they will have to live it.

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