As McKinsey approaches its 100th birthday, huge questions hang over the future of the blue-chip consulting company. “We will kick some ass as we start our second century,” managing partner Bob Sternfels promised a gathering of partners and VIP guests, including Oprah Winfrey, at a centennial celebration in Chicago in October.
But his attention has quickly turned to kicking out his co-workers. According to reports last week, the firm is preparing to shed several thousand jobs in the next 18-24 months, following several years of flat – and now possibly falling – revenues.
McKinsey is not alone in its struggles. Fellow leading strategy consultancies Bain & Company and Boston Consulting Group (BCG) have also been trimming staff, mostly through attrition, while the big global professional services firms that offer consulting, such as PwC, KPMG, EY and Accenture, have been through rounds of layoffs, with Accenture alone shedding 22,000 jobs this year, including 11,000 in the most recent quarter.
Indeed, McKinsey has already been quietly cutting its workforce, which had expanded rapidly in the years before Covid. From a peak of 45,000 employees in 2022, the total may already be down to 36,000, says James O’Dowd of Patrick Morgan, a professional services talent advisory firm. This wave of cuts is prompting dire predictions of a coming consulting crash, as fundamental problems with the traditional consulting business model are compounded by the current boom in artificial intelligence. Consultants themselves, who have never seen a new business trend they didn’t think they could make money from, are more inclined to talk of AI as a massive opportunity, at least in public, though how they see the downside risks privately is another matter.
For McKinsey, in particular, the crisis may reflect something deeper than cyclical headwinds: a loss of its once-unassailable reputation. “The tide is turning,” says Mariana Mazzucato, an economist who questioned the basic value proposition of McKinsey and other brand-name consulting giants in her 2023 book with Rosie Collington, The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies.
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Although it is too soon to be certain, she thinks McKinsey may have lost its Teflon-like ability to emerge unscathed from corporate and governmental disasters. Agreeing a year ago to pay $650m to settle criminal charges related to its role in worsening the US opioid crisis may have permanently tarnished its brand with the sort of idealistic, best-in-class MBA graduates it used to have the pick of when recruiting, says Mazzucato.
The scepticism extends to prominent business figures. “If the consulting business was a stock, I’d be shorting it right now,” said Silicon Valley investor Peter Thiel this summer. Thiel has been publicly questioning the value of traditional consulting since at least 2023, when he called McKinsey a “total racket” that charges a fortune without delivering the sort of valuable help it did back in its 1980s/1990s heyday when most companies were badly run.
Instead, Thiel expects a shift to a new sort of consulting firm offering a combination of business strategy with deep technological expertise and the ability to deliver solutions, such as Palantir Technologies, which he co-founded.
The industry’s troubles are being compounded by growing customer dissatisfaction. Governments, which have provided a steadily growing share of consulting revenues, are increasingly questioning what value they get for their money. By May, the US government had cancelled $71bn worth of consulting contracts, albeit many of them because they included diversity, equity and inclusion provisions that the Trump administration regarded as unacceptably woke.
Saudi Arabia has also had its fill of expensive advice that doesn’t deliver results. The Kingdom, especially its huge state-owned Public Investment Fund, has grown weary of paying a fortune for 1,000-page consulting reports that don’t actually result in better decisions. McKinsey can no longer count on the $500m it has reportedly received annually from Saudi Arabia for the past two decades; likewise Bain, BCG and PwC, which have invested heavily in building relationships with key budget holders there.
New competition
At the same time, the big incumbents are being challenged by a wave of smaller, more specialised rivals. Many of these are backed by private equity, which O’Dowd points out used to regard consulting as too risky but, especially in the past five years, has been attracted to the combination of potentially strong cash flows and margins to be reaped from rolling up smaller firms into bigger ones, and from building franchises around star consultants hired away on lucrative deals from the incumbent giants.
The combination of more demanding customers and more effective competitors is being turbocharged by the latest generative AI, which some experts say poses an existential threat to the traditional consulting model.
Already, leading firms have made significant pivots to embrace the positive side of the opportunity versus threat equation. Last month, Accenture said that all its employees are now known as “reinventors” as the company focuses its efforts on helping clients use AI to reinvent themselves, for example.
The biggest risk is to firms that have relied on the so-called pyramid structure, in which a relatively small number of senior consultants bring in the business, whilst most of the work and billable hours are produced by an army of junior staff who produce, say, industry reports that AI can now do almost as well, far more quickly and cheaply.
Faced with clients unwilling to pay what they did for this work –especially as they could probably now do much of it themselves –industry experts predict a shift to a diamond structure by the big firms as many of those juniors are replaced by AI. McKinsey’s forthcoming job cuts, which are expected to come from non-client-facing parts of the business, seem likely to fit this pyramid-to-diamond trend.
Across the consulting industry, firms are trying to figure out how AI will influence three big structural shifts that are already reshaping the business, says Narry Singh, executive partner and managing director of Alix Partners. First, can in-house expertise be transformed using AI into scalable products that clients will pay for?
Second, how fast will AI shift the consulting business model away from billable hours to payment based on delivering pre-agreed outcomes to clients?
Third, can clients be persuaded that, given the huge uncertainties around the business implications of AI, instead of hiring project-by-project they should commit to going on the journey together by putting the consulting firm on a long-term retainer?
An uncertain future
With so many of the governments and businesses that pay for the estimated $1tn consulting industry now desperately trying to figure out how to make AI work for them, there are likely to be huge opportunities for consultants that can come up with something genuinely useful to offer. Whether that will be the established industry leaders, or others better able to kick ass, remains to be seen.
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