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1-Page Summary of The Firm

Origins

McKinsey and Company has been the most admired, envied, prestigious consulting firm in the world since its founding in the 1920s. Yet some wonder if it can continue to exist given recent scandals.

James McKinsey was a professor at the University of Chicago. He wrote books about budgeting, which is when you track your expenses and revenues to see how much profit you’re making. With his first client, he started an organization called McKinsey & Company that has helped businesses make better decisions for over 80 years. In the late 1920s, he left the university to run this company full-time because it was so successful. By 1935, it had clients in banking, steel and retail industries. The founder died from pneumonia at 48 years old in 1937 after saving Marshall Field’s (a department store) from financial ruin by laying off many employees

Marvin Bower

After its founder died, the firm experienced several mergers and splits. It eventually became McKinsey & Company again in 1947. During this time, Marvin Bower led the company as managing director and developed a strong culture for the organization that is still used today.

Under his guidance, consulting became a prestigious occupation. Bower described the successful consultant as intelligent, educated, likable, socially skilled and attractive. He also emphasized integrity and values in his consultants. They should always put their client first before profits or interests of the firm. Clients get all the credit for success; consultants are discreet about their clients’ identities as well.”

Marvin Bower believed in nurturing young talent rather than recruiting experienced professionals. He focused on hiring new MBAs from top business schools, especially Harvard. Senior consultants would mentor and guide the new hires as they learned the ropes of consulting through assignments with paying clients.

A particular consulting firm was successful and copied by many other firms. This company’s business model worked well and was inexpensive to implement. The leader of this company, Marvin Bower, led the company during a time when the economy grew rapidly and helped build its brand name. Many companies on Fortune 500 used his firm for their consulting services.

Riding the Waves

The firm started out well and was able to capitalize on organizational efficiency work during the Great Depression. It also helped people manage their businesses better by working with them during World War II. After this, it rode the wave of decentralization in companies which needed restructuring. Then, when that wave ran its course, it capitalized on mergers and acquisitions boom of the 1960s.

The firm helped reorganize Europe and, during the Eisenhower administration, became the chief architect of a greatly expanded federal government. It was also responsible for awarding many subcontracts to its clients.

McKinsey & Company grew to 400 consultants and became a global business by the end of the 1960s. It opened its first office in London in 1950, but by 1969 more than half of its earnings came from outside the United States.

McKinsey was only interested in working with the most prestigious clients. It would take on projects that were interesting and worthy of its talent. By 1970, McKinsey might have had the smartest business thinkers on the planet. Like IBM, McKinsey became a firm that no one got fired for hiring. Executives retained McKinsey and other strategy-consulting firms less for their brilliance than for deflecting blame or sending a strong message to employees or for gaining knowledge of competitors’ activities. Because McKinsey almost never grants industry exclusivity, what it learns from one client becomes valuable marketable information for another even if they are direct competitors. For most customers this is acceptable because it allows them to share information with competitors while avoiding collusion accusations by sharing information with each other through consulting firms like McKinsey who work with both companies at once without either company getting suspicious about sharing proprietary data between themselves and their competitor(s). Because McKinsey has the largest share of prestigious clients as well as works on some of the most critical issues facing those organizations (like employee retention), they reap benefits from being sought after by all these different companies seeking advice and intelligence about where they stand relative to their competition(s)