McKinsey’s new boss is tasked with cracking the tech sector and balancing rapid growth with reputation.
Last month a long selection process concluded with the appointment of Kevin Sneader, Chairman of McKinsey’s Asia unit, to replace Dominic Barton in the top role of Managing Partner. The firm is currently thriving, and has been on a growth trajectory for the past decade, during which its annual revenues have doubled to $10 billion.
McKinsey has also grown in size, and staying on the growth track has entailed some strategic changes. According to Barton, half of the firm’s activities fall within capabilities it did not have five years ago. The emphasis has been on the technology sector. In particular, McKinsey has sought to become an authority in the digital space. To this end it has made several acquisitions, including QuantumBlack, a London-based analytics firm, and Silicon Valley design company LUNAR. Given that human capital is its stock in trade, McKinsey has also shifted its recruitment strategy to mine for consulting talent amongst seasoned data scientists and software developers.
To attain a higher profile in the digital sector, McKinsey will need to demonstrate its relevance to the right mix of technology companies. Its current clientele includes a number of older tech firms, such as Hewlett Packard; however bringing on newer tech giants and well-funded start-ups is proving more of a challenge. McKinsey is not alone in this. As The Economist points out, “In general, management consultancies have made fewer inroads into firms such as Facebook and Google. That is partly because consultants typically help struggling firms cut costs; they have less appeal to firms already on the cutting edge.” Further, the tendency amongst big tech firms is to keep things in-house. Some, notably Amazon, even compete with McKinsey for consulting talent.
To win in this climate, McKinsey has adopted a strategy of targeting mid-sized technology companies, where it can get its foot in the door earlier in a company’s lifecycle. Since such companies are often not able to afford McKinsey’s fees, it offers smaller “startup-sized” teams for shorter-term projects. The firm is also taking on less glamorous assignments, moving into business restructuring in 2010, and building a global strategy implementation practice. Under Barton, McKinsey has also adopted more of a results-based fee model, similar to consulting industry competitors like the Boston Consulting Group and Bain & Company.
For Sneader, near-term challenges will include some damage control related to what McKinsey has described as “errors of judgment” related to its work with a consulting firm in South Africa. Whether the misstep was a consequence of the firm’s rapid growth is open to debate. More importantly, the situation begs the question of whether McKinsey will be able to sustain growth, taking on more human capital and practice areas, while maintaining what is most essential – its reputation.