Approaches to the powerful yet mysterious consulting firm.
The suit: tailor-made, the elbows: out. Management consultants are often said to be capable of anything, but guilty of nothing. McKinsey employees have a very special reputation. The “Mackies”, it is said, are the toughest players on the pitch. Their working hours are longer, their bills are higher, their results are better. They stand for austerity, tough cuts and job losses: when McKinsey comes, others have to go.
It is said that McKinsey consultants work 14 hours a day, at least, are only interested in shareholder value and cash flow, and measure the productivity of companies with a stopwatch. Nobody knows for sure whether this is true. There are many myths surrounding McKinsey. And: McKinsey is a black box.
It is part of the company’s code of conduct to keep all information about assignments secret. Anyone who wants to know who McKinsey advises will be turned down. No, no names of companies can be mentioned. No cities either. Not even the industry.
Where McKinsey is involved can only be found out, if at all, through the customers. A company that explicitly admits to working with consultants wants to implicitly show that it has recognized its problems. This is what happened at Migros: the media office recently announced that it was getting advice from McKinsey when developing strategies.
Migros has a lot of problems. It is barely making any money in the supermarket business, and in 2023 it achieved its worst result in almost forty years. In order to cut costs, it is currently laying off hundreds of employees. That will not be enough.
If Migros wants to survive, it has to completely reposition itself. And this is where McKinsey comes in: the consulting firm’s sales promise is a major clean-up.
Two worlds are uniting. Here are the agile management consultants who strive for efficiency and profit, and there is the sluggish retailer who prides himself on being a social employer. What Migros will look like in the future depends on this unequal alliance. And many people are asking themselves: can this work out?
Horrendous bills
Christoph Lechner is a professor of strategic management at the University of St. Gallen. He says: “The right people are not always on board to pull a company out of the mud when it is doing fundamentally badly.” Some bosses are overwhelmed, others are biased. By bringing in consultants, they bring in an objective view.
McKinsey is known for its network of former “Mackies”. Sabine Keller-Busse, head of UBS, is a McKinsey alumna, as is Robert Cirillo, head of the Swiss Post. At Migros, three of the seven members of the general management of the Cooperative Federation also learned from McKinsey. So they should know how it works, and yet they still let their former colleagues help them.
According to Lechner, the consultants work on two levels. The first step is to take stock of the stores. “They look at the figures and assess which units have a future and which don’t.” The next step is to reduce costs in the remaining stores, which at Migros are the supermarkets. “McKinsey is going through it with an iron broom.”
McKinsey shows Migros where it can save money. And, as a major contradiction, sends it horrendous bills at the same time. Expert Christoph Lechner estimates that 40 to 50 McKinsey consultants work for Migros. One consultant costs around 100,000 francs a month. That would be more than 4 million francs that Migros pays McKinsey every month.
Not a job, but an identity
In return, McKinsey promises its best clients the best consultants. Hardly any other company puts a comparable amount of effort into recruiting employees. In 2018, McKinsey received 750,000 applications, but only 5,000 employees were hired, which is less than one percent. McKinsey employs 45,000 people worldwide. Many only stay with the company for a few years.
The principle is “up or out”: if an employee does not reach the next level of the hierarchy within a set period of time, he or she must leave. A small percentage of the workforce is later elected as a partner or senior partner and can charge daily rates of 10,000 francs.
McKinsey was founded in Chicago in 1926, and the Great Depression followed a few years later. Everyone was going downhill, but McKinsey was rising. After the Second World War, McKinsey expanded into Europe, and in 1962 the office in Zurich was opened. The first clients were Nestlé, Sandoz and the Swiss Bank Corporation. Today, 500 employees work in Zurich and Geneva.
It is said that McKinsey consultants recognize each other immediately: by their language and the way they approach problems and structure presentations. During the week they jet from one assignment to the next in business class, and at the weekend they meet in the forest and work on team building. McKinsey is more than a job, McKinsey is an identity.
Amid bankruptcies
McKinsey is linked to Switzerland through a history that still resonates today: the demise of the Swissair airline. McKinsey developed the Hunter Strategy for this airline in 1997. Swissair could only remain independent if it acquired shares in foreign airlines, the council said. It was a disaster.
The purchases never paid off. McKinsey was allowed to stay anyway and issue invoices for 100 million francs. Swissair was grounded in 2001. It was the biggest bankruptcy in Swiss economic history, and the consultants were caught in the middle of it.
Another McKinsey project in Switzerland was Credit Suisse, another downfall. Joe Ackermann, long-time head of Deutsche Bank and former manager at Credit Suisse, writes in his recently published autobiography that McKinsey consultants were partly to blame for the failure of Credit Suisse: Their advice was responsible for breaking up and destroying the traditional banking culture in the 1990s, which made Americanization and the bonus culture possible in the first place. And even in the scandal-ridden final years of Credit Suisse, McKinsey was always involved: Tidjane Thiam and Ulrich Körner, the bank’s third-to-last and last CEOs, were once employed by the consulting firm.
McKinsey came away empty-handed from the big deal between UBS and CS a year ago. The mandate to integrate CS into UBS went to competitor Oliver Wyman. And it was clear to everyone in the industry: McKinsey would pay for the Swissair and CS cases.
Consultants can also be powerless
McKinsey is now taking on the next Swiss institution, Migros. And Professor Christoph Lechner says: “It may happen that Migros will also go under. But that can only be blamed on McKinsey to a limited extent.”
You have to know that Migros has a complicated organizational structure in which the head office is not in charge, but rather ten regional cooperatives govern the head office. It is like an inverted pyramid, and it makes Migros unprofitable and sluggish.
The expert Lechner suspects that McKinsey advised Migros to separate from this organization, but that Migros apparently does not want to do this or cannot manage it. He says: “If Migros does not change on this point, every consultant in the world is powerless.”
Power is one thing anyway: it is difficult to measure the influence of consultants. The so-called “return on consulting” is controversial because there are many other factors that affect the course of business.
The management consulting industry has been growing continuously for years. In Switzerland, the income of the three big consulting firms McKinsey, Bain and Boston Consulting Group has tripled since 2010. The industry is also doing extremely well internationally. Its turnover was recently 45 billion Swiss francs, and it is said that of the 100 largest companies in the world, ninety have business relationships with McKinsey.
The consultants are a small group with great influence. And critics say they have no moral compass.
Fataler Opioidskandal
Weapons manufacturers, authoritarian regimes, oil companies; McKinsey has a seat at the table with countless companies and authorities. A former consultant describes the power of his former employer as follows: “There is no secret society that determines the history of humanity. But there is McKinsey.” Two journalists from the “New York Times” found the quote for their “Black Book McKinsey,” in which they write in detail about McKinsey’s failures.
One case concerns the role of consultants in the American opioid scandal. McKinsey had advised the drug manufacturer Purdue Pharma to pursue an aggressive sales strategy for its painkiller Oxycontin, even when it had long been known that it was highly addictive. The result was a nationwide opioid crisis with hundreds of thousands of deaths.
More than forty American states have sued McKinsey, and in recent years the company has paid nearly $800 million to redeem itself. The settlements were not official admissions of guilt, but they did strengthen the company’s reputation.
The villains
Most of McKinsey’s mandates are more harmless. And they often have one thing in common: the consultants are only brought in when a company is already in a lot of trouble. This is often followed by job cuts, which McKinsey recommended but which were also unavoidable. In other words: even if a company knows internally what needs to be done, it gets external help to carry out long-planned layoffs. As is now the case with Migros.
In February, the retailer announced that it would have to cut 1,500 jobs. The first part was announced in May; 150 people were given notice, including pregnant women and women on maternity leave. The next layoffs could be announced on Tuesday. Migros is also looking for buyers for several specialist shops, the industrial company Mibelle and the subsidiary Hotelplan. Jobs will also be lost there.
If Migros’ strategy works and it soon starts making money again, the management is sure to receive praise. If things turn out differently and Migros’ figures are even worse in the future, many will see the consultants as the culprit.
As always, McKinsey will not make a public statement in either case. The consulting firm’s business model is to get paid to play the villain – and then move on to the next project.