[danmostudco]

From the article: “McKinsey started as a business that sold candid, dispassionate advice to corporate managers, but selling advice and building a brand around it also sets up a mechanism for diffusing responsibility. The managers can say they’re just following the best available advice, and the consultants can say they’re just trying to help their clients boost profits and efficiency.“

I spent some time with an Engagement Manager at McKinsey a few years ago, and he noted one function that they provide to executives is a seemingly neutral arbiter for tough decisions that may be politically untenable inside an organization. A CEO may know exactly what drastic steps they need to take, but will face internal executive strife, board pressure, or lack of buy-in from the business to execute. McKinsey provides credibility in cases of extreme actions (layoffs, re-orgs, shutting down business functions, etc), which is why the final deliverable of an engagement will often times simply state what was already known across the organization, but in a more packaged, compelling format. The same Engagement Manager then noted that if management doesn’t know exactly the “answer” is to the question they are asking, often times the McKinsey Partner supervising the case has seen the problem enough times to generally know the solution they will recommend out of the gate, as they specialize in industries. Their team arrives and then spends the cycles putting together justification for their upcoming recommendation.

It seemed to me similar to the old adage “nobody gets fired for buying IBM,” executives can lean on the good will of the McKinsey brand to justify and expedite certain tricky decisions. In many cases this is about providing confidence to move in a certain direction. This has two benefits: the broader organization can be told an outside firm was able to arrive at said battle plan - ideally increasing buy-in since the “experts” recommended it, and if things go awry the executive can point to the deliverable handed off by the consultants as the sanctioned playbook. So this “diffusing responsibility” is a feature, not a bug.

I’ve seen two solutions to some of the implicit problems described above, neither or which are cheap or easy: either A) the management team is solid enough and garnered enough goodwill that they can navigate such troubled waters (hard to do as the business scales) or B) An organization gets large enough they can fund their own internal management consulting team to tackle tough problems on a case by case basis - Samsung has used this across their business lines.

[rmrfstar]

GDP growth comes from productivity growth. Productivity growth comes from research and development.

Michael Pearson [1], a 23 year McKinsey veteran pharma CEO, claimed that R&D was "inefficient". It is just mind blowing that people see this and don't panic.

We are allowing ourselves to be ruled by mediocre spreadsheet jockeys.

[1] https://en.wikipedia.org/wiki/J._Michael_Pearson

[2] https://dealbook.nytimes.com/2013/09/02/in-a-new-book-mckins...

[verucanacl]

The idea that r&d is inefficient is not unreasonable. the reality behind valeant's demise is more complex. valeant initially began its strategy of buying cheap, cash flow generating assets. But as time went on, they ran out of low hanging fruit as asset prices rose and deals became harder to find. to generate revenue growth and support their growing debt balance, they resorted to unethical, and illegal, tactics such as raising prices and defrauding insurance companies into reimbursing their products.

[pbk1]

People didn't "panic", but the markets and industry did certainly react to his ideas and behavior - the pharma company he ran (Valeant) tanked and he was ousted as CEO.

[rmrfstar]

They reacted to his public acknowledgement of private policy, not the policy itself. He was just parroting this McKinsey memo from 2010 [1].

R&D in the United States is dangerously neglected.

[1] https://www.mckinsey.com/industries/pharmaceuticals-and-medi...

[pas]

R&D is done via acquisitions, basically outsourced to startups. Probably "more efficient this way". (Which is kind of true, after all if the big incumbent buys the competition, there's no real incentive to really upgrade their offering, as they just bought that too, and they can do a small symbolic upgrade. Plus eventually do the regular run of the mill, business as usual, do what everyone else does around the world, 0 risk course of action thing.)

[bumby]

Freakanomics did an interesting episode on this indicating that as companies mature they have to focus more on “maintenance” of existing business rather than R&D. Acquiring smaller businesses becomes a natural way of investing in R&D

https://freakonomics.com/podcast/in-praise-of-maintenance/

[bumby]

While I agree that R&D can be a major driver, it’s not the sole way to increase productivity. Making existing processes more efficiently is also a means to increase productivity, often with more immediate ROI and less risk than R&D. I have a feeling that may be the “inefficiencies” he was alluding to

[pas]

Well, of course, from a specific view point on short-term to reap the most profits of a mature sector, R&D is not needed. (Let's say for Boeing, just sell the same plane tweaked a bit, don't spend and bet big on a new design.) But then on long-term the company just gets disrupted (oh damn, no pun intended). And for McKinsey it doesn't matter which company they give advice to.

[rmrfstar]

Yeah, but you don't grow GDP 5% per year by shaving basis points off of vacuum tube manufacturing costs.

You grow 5% per year by putting physicists, chemists, and engineers under one roof and letting them invent transistors. Society at large will thank you, and the builders/makers/hackers doing dope shit will thank you.

[bumby]

R&D is definitely necessary for long term growth but I think you might be surprised how much process improvements can improve productivity.

In a previous role as an industrial/process engineer, it wasn’t unheard of to productivity increases approaching 20% for relatively little capital investment

[sunstone]

Just because R&D is inefficient (it is almost by definition). It does not follow therefore that R&D is uneconomic. Though sometimes the government has to carry the cost.

[cushychicken]

“diffusing responsibility” is a feature, not a bug.

Another way I've heard this said is: "McKinsey doesn't typically sell you the plan for the hard change - they sell you the credibility to act on it."

[coredog64]

The pithy version of this is “Paying McKinsey to look at your watch and tell you the time.”

[cushychicken]

I like this one better XD

[pas]

It's not usually a problem. Big companies are inefficient and over-conservative (because they're risk averse and short-term oriented). Thus unsurprisingly they are bad at adapting, and sometimes there's a correction needed. Eventually the market will give them enough incentive to either get their shit together or a competitor will eat their lunch. (And McKinsey will just provide consulting to that one.)