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Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor

781 points by jashkenas 7y ago

faizshah 7y ago
Matt Stoller wrote a really interesting book giving a history of monopoly power in America: https://www.amazon.com/Goliath-Monopolies-Secretly-Took-World/dp/1501183087 https://www.amazon.com/Goliath-Monopolies-Secretly-Took-Worl... On my winter reading list :)
- Wordball 7y ago
  Thanks for the recommendation, I didn't read the article either.
  - faizshah 7y ago
    Darn my pinning in google keep and reading the thread the next day has backfired on me! :)
- ak217 7y ago
  I plan to read it at some point, but I was really turned off by Stoller's relentlessly cloying self-promotion in his newsletter. I get it, he writes well on important topics, but he could use a bit more subtlety in pushing his stuff.
- pkilgore 7y ago
  It's really good!
dsfyu404ed 7y ago
TL;DR organizations respond to incentives and the incentive laid out in the legislation for the organization responsible for setting prices the government pays is to spend money, not save it and McKinsey takes advantage of that. Considering that a big player like McKinsey can't systemically overcharge the government and get away with it due to how noticeable it would be in terms of sheer dollar amount there are likely be other smaller players that are making even more absurd profits on their services and I wonder who they are since IMO their existence is more worthy of investigation than some BigCo walking right up to but not over the line drawn by the law (as BigCos do). This is not to say that the incentive structure shouldn't be changed to categorically prevent all this.
- rootusrootus 7y ago
  Okay, I'll ask the next question. How do I get to be one of those smaller players. Ha!
  - smacktoward 7y ago
    You'd need to get your business listed on the GSA's schedule of approved contractors (see https://www.gsa.gov/buying-selling/purchasing-programs/gsa-schedules https://www.gsa.gov/buying-selling/purchasing-programs/gsa-s...). Being "on the schedule" means you've already been pre-vetted and deemed a legitimate vendor by the GSA. For government agencies, doing business with a contractor on the GSA schedule lets them skip a whole bunch of approvals and paperwork that they'd otherwise have to do if they just pulled in a vendor off the street. Getting on the schedule can be a long and bureaucratic process, but once you're on it you have a privileged position when it comes to winning government business. So if you want to sell to the Feds, you really want to be on that schedule.
benmarks 7y ago
Only recently discovered Mr. Stoller's media/reporting, and I have been absolutely impressed with his weekly mailing. Can highly recommend subscribing.
hwbehrens 7y ago
The IFF referenced in the article seems like a great example of how good-intentioned changes to incentive structures can have very warped outcomes, potentially years later. These kinds of effects keep popping up for me, even in industry contexts (e.g. stack ranking). Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied? How many "hops" of influence can you get away from the change before the effects are impossible to predict? Or does it just boil down to "ask very smart domain experts to think about the problem very hard for as long as you can afford to pay them"?
- iudqnolq 7y ago
  The key quote this is responding to: > ... less [to do] with McKinsey and more with an incentive to overpay more generally. It’s more likely something called the ‘Industrial Funding Fee,’ or IFF. The GSA’s Federal Acquisition Service gets a cut of whatever certain contractors spend using the GSA’s schedule, and this cut is the IFF. The IFF is priced at .75% of the total amount of a government contract. In the case of McKinsey, since 2006, “FAS has realized $7.2 million in Industrial Funding Fee revenue.” > ... The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time. In 2013, the GSA Inspector General traced a similar situation with different contractors. Managers at GSA overruled line contracting officers to raise prices taxpayer pay for contractors Carahsoft, Deloitte and Oracle. Government managers at GSA micro-managed and harassed their subordinates and damaged the careers of contracting officers trying to negotiate fair prices for the taxpayer. > How did the GSA get such a screwed up incentive...?... [T]o become more entrepreneurial as part of its “Reinventing Government” initiative, Bill Clinton’s administration implemented the Industrial Funding Fee structure. It worked in generating money for the GSA ... so well that Congress’s investigative agency found in 2002 that the GSA stopped having to rely on Congressional appropriations.
- TheSoftwareGuy 7y ago
  >Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied? Yes, look for cases where A is rewarded, but B is expected: https://www.ou.edu/russell/UGcomp/Kerr.pdf https://www.ou.edu/russell/UGcomp/Kerr.pdf
oefrha 7y ago
Title’s terrible, I read it as taxpayers pay $3M a year per U.S. college graduate. It’s not even the original title, “Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor.”
- CharlesColeman 7y ago
  The actual article title is "Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor," don't know if it was edited or the poster just chose something different.
- ativzzz 7y ago
  I've noticed a lot of posts on HN recently get their titles changed after posting, and this one will as well because it is quite incorrect as you pointed out.
thorwasdfasdf 7y ago
from the article >>> "In other words, the agency of the government in charge of bulk buying isn’t paid for saving money, but for spending too much of it. The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time."
- hef19898 7y ago
  And yet there are people refusing to accept that fact, I met one of them. And that guy also failed to realize what an immense cash flow advantage government has against private sector companies. Government wants to spend money as soon as possible. That alone is a huge lever in procuring hardware. Not sure why they don't use it.
gcbw3 7y ago
And let's not forget the outcome of those illegally overpriced contracts: https://www.propublica.org/article/how-mckinsey-helped-the-trump-administration-implement-its-immigration-policies https://www.propublica.org/article/how-mckinsey-helped-the-t...
- turk73 7y ago
  Laws on the books got enforced? I don't get all the bleeding heart nonsense about deporting illegals. The reality is that a certain element of the population commits most of the crimes and makes life a living hell for citizens trying to go about their lives. It is the duty of our government to follow the law and follow through with helping legal CITIZENS maintain their living standards. Failure to do so both de-legitimizes government as well as turns our nation into a chaotic mess, something I would prefer that we avoid. I expect the government to enforce the law, not selectively enforce it, but actually enforce it. If we choose not to then we should repeal those laws. There really isn't a lot of middle ground here--selective enforcement is a liberal tactic used to push an agenda. No other country has been as lax about border security as the US has been and no other country has been as generous to the overall criminal element that benefits from lax/corrupt law enforcement. No other country has been so generous with taxpayer dollars spread around to both friends and enemies. We subsidize Europe, we subsidize North Korea and everything in between. When Trump brings up this sad fact, he is excoriated by the media. But that doesn't me he's wrong. While Americans are paying for the safety and upkeep of most of the rest of the world, generational Americans are being replaced by more pliant newcomers for political purposes while being told our rights don't matter and our needs don't matter even though it is we who pay the taxes to supply those things such as good schools for OUR children. It's falling apart--I'm watching it in our own school district and the especially in the neighboring one where ESL students have overwhelmed the entire system and its ability to budget. All brought to us by well-intentioned, but misguided, profit-seeking Christian churches. An observation: If the county I live in didn't have to arrest so many foreigners for committing crimes there would barely be any crime here. Also, the majority of child welfare cases relate to one issue: Drug/alcohol abuse. I don't even think there would be as much domestic abuse were it not for substance abuse. And what is causing all the substance abuse? Drugs brought to us by lax border enforcement, on purpose, to meet a demand from hopeless souls whose economic lives have been undermined by corporate offshoring and mass immigration, a double-edged knife stuck right in their backs. People, men especially, are giving up and committing suicide. If these communists succeed, you won't like your life under them, it will be seriously miserable. Not enough food, no heat in the winter, nothing that they promise will ever arrive. Worse, there will be no one left to ride to rescue. It is a dark future for humanity if America falls and we are falling.
cafard 7y ago
Many years ago, David Owen wrote about this--though the customers mentioned were in the private sector--in an essay called "Punks in Pinstripes". It suppose that it may have been collected in The Man Who Invented Saturday Morning.
txcwpalpha 7y ago
There's a lot to unpack here, but the general gist is that McKinsey is overpaid for mediocre services. It's hard to argue against that, and McK in particular does have some insanely unjustifiable rates, but I do think the author has a bit of a misunderstanding of why consultancies are hired in the first place. To be clear, when a consultancy like McK puts a 23 year old analyst on a project, the $50k/week bill isn't just paying for the knowledge in the analyst's head. The analyst is really just a vehicle to deliver the expertise of the actually-experienced consultants and knowledgebase of the entire firm. The experienced consultants don't have the time to sit and write out the powerpoint deck, so instead they throw as much knowledge as they can at the analyst and the analyst is the one who synthesizes it into something digestable by the customer. Is it worth $50k/week? Fuck no. But it is at least worth recognizing that you are getting more expertise than a sole bachelor's degree. Second, as someone who has both worked as a consultant at major companies like McK and worked on the other side of the table, and as someone who has long despised the consulting profession because of its overpriced bullshit, I think the author would be surprised at how effective even a measly 23 year old can be. As a consultant, it would drive me insane that my company was billing me out at $700/hr to help implement an IT system when all I was actually doing was reading and regurgitating the software's documentation and making sure that the client didn't ignore it. Surely the client could do this themselves and save the $700/hr, right? It took me a long time to realize that the answer to this question was actually no. The typical HNer will probably be surprised (and saddened, if you're like me) to realize that the average corporate worker bee is in fact not competent enough to do the most basic tasks, such as refer to documentation, without hand-holding. It is an unfortunate reality that sometimes a well-educated and well-vetted 23 year old analyst can do things much better than an 20-year industry veteran. Companies do know this, and this is what they are paying for, much to the chagrin of the rest of us. As a last note, the author mentions the possibility of just hiring an IT professional to do the work instead of hiring a consultant. This is something I also see come up a lot in consulting discussions. The reason this isn't done is because hiring an employee full-time brings on a lot of risk to the hiring company. It can take months to hire someone, many more months to train them, and then if they don't perform up to snuff, it can take years to build up a case to fire them, all the whole they are sitting on your payroll taking up budget. A consultant, on the other hand, can be hired in a day, trained in a week, and if needed, can be fired in a minute. You pay a premium for the agility to hire and fire them quickly, but that's the entire point.
deleted 7y ago
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Vaslo 7y ago
Had a lot of experience with McKinsey doing projects at my company at different levels I’ve been in throughout it the years. When it’s highly technical things like implementing a new technology you know nothing about or a new manufacturing footprint that is tangible to perform, they do good work. Anything “Strategic” or fluffy I find a waste of time. They are excellent salespeople and do a lot to calm the C-suite but I rarely see these fluffy items driving employee happiness or the bottom line after spending millions.
- mumblemumble 7y ago
  Doesn't seem surprising. If it's implementing a specific technical process, there are measurable outcomes that must be met, and your client will know whether or not you met them. Senior leadership contracting an outsider to tell them how their own industry works and explain their place in it, though, is right up there with asking the Psychic Friends Network for career advice. They're just begging to be taken for a ride.
  - mumblemumble 7y ago
    I'm realizing that I should temper my cynicism. "Senior leadership contracting an outsider to tell them how their own industry works and explain their place in it" might be a straw man. Strategic consulting could just as easily be, "We're considering expanding into this new market that we don't know as well, and we're hiring a consultant who specializes in that." Or, a previous employer hired a consultant for guidance on how to prepare the company to be sold.
  - gadders 7y ago
    The old phrase about consultants is that they borrow your watch to tell you the time.
- mdorazio 7y ago
  FYI that's likely due to there being different organizations inside McKinsey (and all the big consultancies) with very different goals and employees. Technical implementation work usually comes out of a different org than management/strategy consulting.
z3ugma 7y ago
I was a technical project management consultant for a long time. The value that most orgs get from a consultant isn't really in the advice the consultant gives them, it's the political cover to make changes they knew they should make all along, but didn't have the social capital or the focus to make those changes until they had a person in a chair across from them.
- Icathian 7y ago
  Absolutely this. It baffles me how many people can understand and repeat ad nauseum "nobody ever got fired for buying IBM" but don't get the role a consultant plays in corporate strategy.
- braythwayt 7y ago
  This. I have done lots and lots and lots of enterprise sales and consulting, and a big part of bringing in outsiders is to provide the illusion of social proof. "Well, we had the experts in, and they found..." That sounds really, really terrible when put so cynically, but the flip side of that is to view it as insurance. If you bring the consultants in, hoping that they will recommend Plan A, and Plan A is truly terrible, a reputable consultant will find a way to sell you on Plan B, by couching it as "A few adjustments to Plan A." So in effect, yes, it is about making changes management wanted all along, but in addition to providing the illusion of social proof, you can also get an extra set of eyes to make sure that you don't completely footgun yourself. Sometimes. Maybe. If the consultants are good at both analysis and selling management on adjusting their plans...
  - bonestamp2 7y ago
    Agreed, and even if the consultants aren't more credible than the intern people, they at least have less bias than internal people, which can sometimes give their opinion a little more weight.
  - taneq 7y ago
    Another big part of it is liability management. If you're a high level exec and you make the wrong call, it's on your own head. If you hire a reputable expert and they make the wrong call, you're in the clear, even if it's what you would have done anyway.
xvector 7y ago
From the linked article[1]: I find it absolutely INSANE that highly specialized organizations like the NSA rely on McKinsey to direct their future operations. These people have intimate knowledge of their organization and culture, shaped and hardened by years of challenges and learned experiences. What can they possibly think bringing an outsider in to do a complete overhaul will solve!? Why can they not apply their own experience to solve problems in their own organization!? The proliferation of consulting firms baffles me. It seems like you’re just paying people for critical thinking. Unrelated: All of my classmates that went into consulting joke about how absurd the field feels to them. [1]: https://www.politico.com/story/2019/07/02/spies-intelligence-community-mckinsey-1390863 https://www.politico.com/story/2019/07/02/spies-intelligence...
- zaptheimpaler 7y ago
  > In the immigration story, MacDougall shows that the consulting firm encouraged ICE to give less food and medical care to detainees. I guess this is one big reason companies hire consulting firms - a consultant can act as a mouthpiece to say things you want people to hear, but not say yourself. A kind of moral laundry, absolving insiders from blame. Similarly they could recommend a risky business plan that someone believes in but doesn't want to stick their neck out for - if it fails, blame the consultants and move on.
- txcwpalpha 7y ago
  >It seems like you’re just paying people for critical thinking. That's exactly what it is. Unfortunately most organizations, probably even ones like the NSA, really struggle with doing any kind of critical thinking on their own. This is especially true when trying to decide on a future direction for the org: the org itself is most likely biased to just doing things the way it's always been done. In that regard, having an outsider's perspective, especially one that has also done work at other similar organizations and has taken note of all the various ways other orgs do things and knows what works and what doesn't, can be quite beneficial.
  - xvector 7y ago
    Getting an outsider perspective - sure. That I can get behind, it can obviously be helpful. But getting an outsider to tell you what to do? A complete overhaul? That’s a leap. You’re going from getting perspective to getting directed by an outsider. A recipe for disaster, and from what we’re seeing here, that’s exactly what has happened.
sjg007 7y ago
I am guessing nothing will change unless there is significant outrage... I imagine McKinsey kicks back money into election campaigns as well. It seems worth it to become a govt contractor though..
riazrizvi 7y ago
I'm sorry but no case is made to support the idea that taxpayers are buying generic advice. Let's agree that the service buys a fresh college grad assigned full time. The grad might be a customer contact collecting and organizing customer issues before presenting them to internal subject matter experts, and then presenting those findings back to the client. I'd like to hear evidence to support how the service is fresh college grads simply using what they learnt in college and their chutzpah, which is what the article implies.
- austinhutch 7y ago
  > The grad might be a customer contact collecting and organizing customer issues before presenting them to internal subject matter experts, and then presenting those findings back to the client This might describe how technical consulting is done at big firms where the output is a product, but when the output is strategic documents... this is grunt work done by the front line analysts with a generic playbook. There is no "behind the scenes" strategy work like there is for dev. Maybe there is a lower analyst or intern that doesn't interface with the customer.
  - riazrizvi 7y ago
    Respectfully do you work in the field, can you talk more to how you are able to do the work all on your own? Or is this an educated guess? If so, I doubt the service contract they were able to write was done by a fresh grad, I guess they are sourcing an internal legal team, and I suspect they have more internal experts to call on. It's common in legal and financial consulting to have junior staff do on-prem time consuming low value work that is a big waste of time for experts, who can be called in to join meetings remotely etc.
  - txcwpalpha 7y ago
    FWIW this is the direct opposite of my experience working in both strategy and technical consulting. When it comes to dev work, it often actually was just a 23 year-old new grad writing code with little oversight (when I was 23 I actually wrote a lot of code that was reviewed by no-one, tested by only myself, and is probably still being used across a couple of F500s). Strategy work on the other hand was almost always reviewed and revised by several tiers of higher-up, more experienced consultants before being delivered to the customer.
billions 7y ago
Who's going to be the tax payer's hero in that government department? This squeaky wheel would effectively defund his colleague's cush jobs and likely his or her own. Not going to make a lot of friends but it will save the tax payer a fraction of a cent.
ismail 7y ago
Not surprised. This happened in South Africa. https://www.dailymaverick.co.za/article/2017-09-14-scorpio-amabhungane-how-mckinsey-and-trillian-ripped-r1-6bn-from-eskom-and-planned-to-take-r7-8bn-more/ https://www.dailymaverick.co.za/article/2017-09-14-scorpio-a...
xenocyon 7y ago
It's not just governments. Large corporations too frequently use McKinsey to make recommendations for things they want to do anyway (e.g. layoffs or restructuring). From the client executive's point of view, the money spent on a McKinsey contract effectively purchases credibility for these decisions.
alexchamberlain 7y ago
> ... Work of a 23-Year Old This really bothers me. I understand the point of the article is that they're charging a lot of money for an inexperienced consultant and no bias (discrimination) was meant, however, age is irrelevant. There are a lot of very "experienced" 23 year olds, as long as you're asking them about the work they've done. There are a lot of people in their 50s with very little experience (as their actual experience is irrelevant to the topic at hand or their actual experience has been very repetitive). I think we need to be a bit more conscious of unconscious bias towards age (in either direction).
- wgerard 7y ago
  I think the point is more like: It's hard to imagine a recent college graduate understanding the machinations of corporate entities enough to give meaningful advice about how to run more "efficiently". It's a bit like when a SV company is promising to revolutionize farm equipment and the founders have no background in agriculture - weirder things have happened, sure, but you can see why people are a bit skeptical. Yes, it's obviously a bit unfair because sometimes untainted eyes can be the most beneficial, but hopefully you can also see why there's a bit of skepticism.
- SolaceQuantum 7y ago
  I fully agree and believe it would be much stronger to say that this is a consultant with "x months of experience" than "23 years old" which could mean anything from 'worked in this field since I was 16' to 'hired yesterday'.
- whiddershins 7y ago
  By definition a 23 year old can’t have 25 years of experience in anything, even tying shoes. They can’t legally have worked full time in the United States for more than 7 years. Unless they are a wild outlier, they can’t have an advanced degree and significant years of professional experience doing anything. You kinda have a point but sensitivity to age discrimination towards the young in this sort of statement is a bit of a stretch imo. It’s also shorthand for absolute realities of time and space. Edit: Age discrimination also isn't perfectly symmetrical because: If you’re young, you will very likely get to be old one day. If you are old, you never get to be young again.
starpilot 7y ago
If you know anyone personally who works at McKinsey, you know them to be brilliant, humble, hardworking, and unfailingly likeable. Think Pete Buttigieg. It's hard to square this with the company's public reputation in anti-establishment screeds.
- boudewijnrempt 7y ago
  I guess you meant this to be sarcastic, right? Doltish, vainglorious, lazy and unfailingly boorish is what comes to my mind when I review the McKinsey people I've met.
  - shantly 7y ago
    That'd all go for about 80% of my exposure to same, can confirm. Doltishness and lack of self-awareness re: the same sorts of things the consult on for others were especially surprising to me.
- vincent-toups 7y ago
  These qualities are not incompatible with being hatchet-men or giving shitty advice.
- deleted 7y ago
  [deleted]
surak 7y ago
McKinsey have messed up government policies all over the world when it comes to McDonaldization of Society. They are using simple measurements to model how complex societies should work, unfortunately this is only works for McKinsey and their partners.
- gwd 7y ago
  Sounds a bit like a lot of "machine learning" actually (when it's done blindly). But do you have any specific references for the kind of thing you're talking about? It sounds plausible, but if I had a dollar for every time something plausible-sounding was completely wrong...
  - WhompingWindows 7y ago
    Sounds like someone doing linear regression, claiming it's artificial intelligence, and charging $150k salary in a year for said data science...
  - surak 7y ago
    I don't want to personalize the comment. But in Europe there are many examples where McKinsey implement a model to fix the money distribution problem. At the end, society gives up the culture and ideals. While the ppl get short handed the partners get a bonus. Still, I think this is mostly a problem of bad public leadership that is not approachable.
kfk 7y ago
The power point thing is so important though and consultants make amazing power points. It’s so important I’d hire a power point master just for explaining to executive all the concerns and issues me and my team have over our IT practices.
UltimateFloofy 7y ago
This is true for most NOVA contractors. In 2010-2012, Accenture and KPMG was pretty new to Federal IT Auditing and most of their consultants had never done anything IT related in their lives. It's ridiculous that accounting and tax firms like Arthur Andersen was able to rise out of Enron's scandal and were able to create catch-all IT divisions and win those contracts from the US government when they had no expertise.
- deleted 7y ago
  [deleted]
12xo 7y ago
This type of stuff is endemic to all bureaucracies. Managers are too scared to make decisions so they look outside in order to justify any decision. Its maddening as these are the very people who are paid to make these types of decisions, yet they dont. And due to their employer being a public entity, they are not held to any real standards nor limited by such pesky matters as profits and productivity. It happens in local government,it happens at the state level and its absolutely enormous at the federal level. The waste is astounding, as are the underlying causes. Its so simple to solve, yet as long as we have the fox's guarding the hen houses, it will remain.
WhompingWindows 7y ago
Pete Buttigieg worked at McKinsey after his college days...which was only 10-15 years ago. I wonder if/how he was exposed to unethical practices and grafting like this...
- sjg007 7y ago
  If he was I expect he understand the issue and as President would work with Congress to reform the practice.
  - thundergolfer 7y ago
    Why would you expect that? He’s been given opportunity to acknowledge the problems with McKinsey and he has avoided the issue.
    - sjg007 7y ago
      Do you have a reference? I’d be interested to read more about it.
      - thundergolfer 7y ago
        Here it is: https://nymag.com/intelligencer/2019/02/a-long-talk-with-democratic-2020-candidate-pete-buttigieg.html https://nymag.com/intelligencer/2019/02/a-long-talk-with-dem... I originally came across these comments of his when reading the piece written about him in Current Affairs.
        sjg007 7y ago
        The latest article in the NYTimes says he is under an NDA so that may explain it.
        thundergolfer 7y ago
        He might be under an NDA with respect to his specific involvements at McKinsey, but he would not be stopped from commenting generally. He really just doesn't have a problem with McKinsey's various immoral practices. That's the simple way to see it.
jshaqaw 7y ago
Former McKinseyite here (and one reasonably skeptical of the firm as a whole)... nobody hires McKinsey for fresh college grads. That’s just something they tell fresh top of class Ivy League college grads to make them feel important. Clients hire Directors to give them peer level strategic counsel. How they technically allocate payment for time across consultants is just backfillling to get to a number already agreed to in advance.
- jshaqaw 7y ago
  By the way, this is not to denigrate the analysts at McKinsey who were in my time typically very smart, nice, hardworking, etc... They performed an important data gathering function. But the bill for their time has the sort of relationship you get when a Legal Assistant at Cravath photocopies stuff in your file. No they aren’t “worth” $500k/hour or whatever rate they bill at these days to photocopy but that isn’t the point. You are paying for Cravath and how that Cravath fee is broken down is largely irrelevant.
  - throwaways66722 7y ago
    McKinsey does flat fees. The flat fees are driven by a rate card estimate, but there's no marginal cost to an extra hour... fwiw
    - speby 7y ago
      Thats because there is 0 additional marginal cost for their salaried consultants' time, too. Like many in the workforce, they are a paid a salary, and it's the same amount whether working 40 hours or 80 hours.
      - excursionist 7y ago
        Isn't unpaid overtime illegal?
        jedberg 7y ago
ramzyo 7y ago
Lost me at the end ... took an otherwise detailed and nuanced analysis and concluded it with a broad generalization that smooths over all of the detail and nuance. “At any rate, at some point decades ago, we decided that most political and business institutions in America should be organized around cheating people. In this case, the warped and decrepit state of the GSA leads to McKinsey-ifying the entire government. Mr. Clinton, you took a fine government that basically worked, and ruined it. McKinsey sends its thanks.“
corporate_shi11 7y ago
As another comment here mentioned: outsourcing of decision making (consulting) is endemic to bureaucracies, whether that's in government, education or elsewhere. Has research been done on the amount of money saved/wasted on these consulting firms? Have any economists tried to evaluate whether or not these consulting firms provide any value at all beyond political cover for bureaucrats afraid to make or incapable of making decisions? From my brief experience working in a large University's bureaucracy and seeing how consulting firms took advantage of the school, I believe the public is being swindled by companies like McKinsey and others. If private corporations want to spend money on consulting firms without any tangible benefits, fine. But taxpayer money should not be wasted on these corporate vultures.
cafard 7y ago
I don't remember seeing HN articles about McKinsey before this month or last. Now there are three articles about McKinsey on HN, including one that says that the Houston Astros' sign-stealing exemplifies the decline of a McKinsified America. (Or maybe it's the Astros that are M'd.) How did it become the flavor of the month?
- mdorazio 7y ago
  Really? I see McKinsey posts come up at least once a quarter. Just do a google site search on HN for "mckinsey".
- SigmundA 7y ago
  I would like to know too, thought it was Baader–Meinhof effect.
- wil421 7y ago
  McKinsey comes up because they are an elitist consulting firm and HN is somewhat of an elitist forum. I am using elitist in a good way, although there’s certainly elitist attitudes on here. As someone who might join a Big 4 in IT consulting soon it’s nice to see what McKinsey is up to. It’s much nicer to see accountability for one’s actions.
  - CobrastanJorji 7y ago
    > I am using elitist in a good way, although there’s certainly elitist attitudes on here. Wait, that last time you said elitist, did you also mean it as a good thing?
    - wil421 7y ago
      Only if I was part of the elite. ;-)
    - deleted 7y ago
      [deleted]
- mayneack 7y ago
astanway 7y ago
$1M for a six week “EM plus two” engagement is on the high side, but it’s about par for the course for most McKinsey contracts. The standard is usually $500k-$1M for that kind of engagement. I think this is kind of a non-story for anyone who is actually familiar with the consulting business model. The brand is all McKinsey really has, and they are very quick to offer free engagements to protect the brand if true value isn’t being delivered.
abeppu 7y ago
On glassdoor it seems like that recent grad business analyst is taking home ~100k [1]. One of the articles earlier this week about McKinsey as "Capital's Willing Executioners" [2] talked about how the firm spreads a specific capitalist ideology. Given that (in this instance), the company is charging a 30x markup for the labor of that recent grad business analyst ... should we be thinking of McKinsey analysts as misguided exploited workers? [1] https://www.glassdoor.com/Salary/McKinsey-and-Company-Business-Analyst-Salaries-E2893_D_KO21,37.htm https://www.glassdoor.com/Salary/McKinsey-and-Company-Busine... [2] https://www.currentaffairs.org/2019/02/mckinsey-company-capitals-willing-executioners https://www.currentaffairs.org/2019/02/mckinsey-company-capi...
- markhall 7y ago
  While I understand the frame of thinking, you'll have a difficult time convincing any advocating party that someone making $100K+ is 'exploited'. Multiple examples probably can be found across a number of industries
- tedsanders 7y ago
  I worked as a management consultant. When my firm billed my time out at ~$10K/day and paid me ~$150K/yr (a ratio of ~20:1), I didn't feel exploited. That ~$10K/day covered way more than just my time. Here's what that billing had to cover: * My normal work hours [the thing we billed for] * My overtime hours * My annual bonus * My benefits & retirement savings & overhead & employer-side taxes * My time spent on business development & sales (most of which don't pan out) * My time spent on discounted or free projects performed to seed future sales * My time spent in training & development (probably ~4 weeks in the first year) * The time of managers spent training & developing me * My support staff (industry analysts, Powerpoint designers, internal experts) * Multi-million-dollar IT investments to build tools and databases to support me in my work * A couple first-class flights a week * A few nights a week at expensive hotels * Lyfts & Ubers everywhere * All meals expensed * The firm's partners working the case * New employees for whom we don't bill * Fees for market reports * Fees for expert interviews with industry executives (in some cases we'd do dozens of interviews a week, paying ~$1K/hr each) * Office overhead (rent, power, insurance, etc.) * Office support staff (HR, finance, janitors, etc.) * Profits for the firm's equity holders (Now a few of these expenses were billed separately I believe, but it shows the wide breadth of costs that a firm has to cover.) None of this opportunity would have existed without the firm, the network, the brand, and the partners. It's amazing to think that all I had to do was show up and work, and in exchange, I would get paid a high salary, get experience working with senior executives, get a prestigious brand on my resume, and accelerate my career relative to most career tracks. I don't regret the job, nor do I think it's surprising that there are crowds knocking on the door trying to get in. Looking at other industries, I wouldn't be surprised if a cashier at a grocery store made less than 5% of what they put in the register each day. And I wouldn't be surprised if a oil driller got paid 5% of oil that they extracted each day. Even if we're the ones touching the revenue, we're still a small part of what it takes to run a big business.
code4tee 7y ago
Have been on the receiving end of several McKinsey engagements. The work itself was generally not all that good. The knowledge of “experts” brought into meetings rarely contributed more than what a reasonably intelligent person could dig up on Google search results in an hour. They were also often farmed out on random staff augmentation functions that just annoyed the hell out of people. “Hi I need you to fill out this excel spreadsheet with 35 columns so we can put a presentation together... oh and if you could do that by 6 PM tonight that would be great.” That sort of nonsense so they could produce some nonsensical 50 page PowerPoint deck that nobody read. There were a few decent people there but by and large value was not generated. As others have pointed out a major motivator seemed to be to provide some C-level exec with CYA coverage to claim that programs being implemented were based on the advice of outside “experts.” In the two main cases I saw the McKinsey strategy ended up being a total disaster that seriously damaged the company and the C-level exec that hired them in both cases got canned as a result so in the end even the CYA concept didn’t really work.
- choppaface 7y ago
  Have worked with two ex-McKinsey consultants (hired as employees) and want to echo the observation that they tend to use their fast execution to generate excessive BS like large spreadsheets to win office politics. In one case, the guy had built a small org to fulfill a need that we had previously outsourced to a vendor. The company was thinking of signing a large contract with the vendor and he created a barrage of 20-page spreadsheets to try to justify his budget. He made me sit with him for an hour to extract random cost estimates for one of his sheets. The vendor ended up turning into a Silicon Valley unicorn... exactly the sort of opponent he wanted I guess. I think the trouble with McKinsey is they breed competitors who have never seen working products. If a product works, there’s probably a clear vision and a clear definition of value. When products are broken, winning office politics looks valuable, hence the McKinsey fascination.
- edelans 7y ago
  CYA = Cover Your Arse (I just found about that one, sharing if it can help others)
sailfast 7y ago
> The consulting firm’s sway at ICE grew to the point that McKinsey’s staff even ghostwrote a government contracting document that defined the consulting team’s own responsibilities and justified the firm’s retention, a contract extension worth $2.2 million. “Can they do that?” an ICE official wrote to a contracting officer in May 2017. Nope. This is illegal under the FAR. If they're doing it, they should be barred from Federal contracting. For what it's worth, I think this author gives the GSA a bad wrap based on the analysis of one individual. GSA has to do a LOT of work to award and manage a large number of contract vehicles that allow everyone in government to purchase goods and services at negotiated rates (which also saves them hundreds of thousands on hiring their own contract staff). The fact that the funding fee incentivizes GSA to help people spend more money is not necessarily a perverse incentive - it gives them the incentive to ensure their contract vehicles are effective vs. a normal procurement.
ineedasername 7y ago
I guess it doesn't change the value proposition much, but the whole "23 year old recent college grad" thing is a little overblown. Sure, a college grad like that might land somewhere with a title of "Business Analyst", but the higher the consulting contract the more likely it's some "distinguished" or at least older person with a shoe shine and 30 years of absorbing all of the management buzzword trends. I just had a round of them come through where I work, and 3 of the 4 met this description. The 4th was the younger "college grad" and they made him actually click the power point slides forward.
MFLoon 7y ago
Sort of a buried lede here. There's nothing shocking about overpriced, underdelivering consultants. But the bit about how the GSA is essentially profit sharing with said overpriced consultants at the expense of the rest of the government and taxpayers, via the IFF incentive structure, is pretty mind blowing. Another brilliant financial "innovation" by the Clinton Administration that's been quietly burning billions of taxpayer dollars to the end of significantly less efficient government for decades now...
- l5870uoo9y 7y ago
  It is not only a US pattern, go to every major European capital and the consultancies will be located right next to the ministries.
  - MFLoon 7y ago
    I'm sure they are, but do the European governments equivalent of the GSA also have incentives to actually drive up the price of consulting contracts they source for their governments? It's not just the coziness that is concerning, but the particularly perverse incentive structure that essentially makes the GSA an inside agent of the consulting industry.
    - michaelt 7y ago
      Here in the UK we usually go for the traditional things: Consultants provide free assistants to ministers. Assistants advise that X is a superb idea. Government pays consultants for help implementing X, which they happen to be experts in. Then everyone impacted by X also hires the consultants to figure out what's going on. Later the minister leaves government and is hired for a £x00,000 salary for one day a week of 'advice'.
- TrackerFF 7y ago
  McKinsey, Bain, BCG, et. al. are all extremely close to state and industry in all countries. I'm from Norway, and every now and then someone will publish articles about the governments exorbitant use of consultants (McKinsey at that) for seemingly menial tasks which should be handled internally. Truth is, these management consulting firms have some very good advantages to keep their business model going: 1) Their alma matter is spread all over the world, usually in the upper management. 2) They get highly detailed information from all sides, and can tweak their best practices accordingly. 3) They take the blame, so as others have mentioned, they're basically a million $ CYA insurance for both politicians and executes alike. You could remove incentives like those mentioned, but I'm sure they'll find some other way to make money. They're so tightly integrated, and in so many places around the world, they probably have hundreds and thousands of strategies up their sleeves.
dboreham 7y ago
One of those "we're in the wrong business.." moments.
Matticus_Rex 7y ago
Ugh... I work at a much, much smaller niche-focused management consultancy. I'm really glad we don't do this or play political cover... but also it would be fantastic to make what they make. The perils of actually having expertise that clients need and not playing pork games, I guess.
m0zg 7y ago
Hmm. HuffPo ran a front-page hatchet job on Buttigieg disclosing that he's ex-McKinsey. Coincidence?
akayoshi1 7y ago
Consultant-ceptio
abbadadda 7y ago
> In other words, the agency of the government in charge of bulk buying isn’t paid for saving money, but for spending too much of it. I'm shocked SHOCKED to learn the U.S. government is not a well oiled machine free from fucked-up incentives or outright corruption.
TheMagicHorsey 7y ago
I don't know much about this article, but Matt Stoller wrote one of the most garbage articles about Netflix a while back, where he claimed Netflix has a monopoly on online TV show production. I think he lacks analytical rigor and basically bangs on a keyboard with strong emotions. Having said that, McKinsey consulting services really are 90% a finishing school for Ivy League liberal arts majors so they can move onto real work.
anonu 7y ago
My favorite McKinsey story: Back in 2005 UBS (big Swiss Bank) brought McKinsey in to figure out how to expand more rapidly in the US. The consultants suggested, "Hey, you have almost no sub-prime exposure. Everyone's trading this stuff! You gotta go in, and in a big way! It will certainly be a pillar of your US strategy." So UBS did... The result was one of the most severe debt writeoffs of the Great Financial Crisis.
- jankyxenon 7y ago
  Is the point that McKinsey didn't know the Great Recession was coming / it's causes ahead of time?
  - anonu 7y ago
    The point is that they suggested a strategy that other big banks were already doing. There was no creativity in their suggestion in this regard.
Myrmornis 7y ago
It's depressing to think that there are people who aren't already aware that corporate consulting is pure BS, but I guess there are and so I guess it was worth writing it.

781 points by jashkenas 7y ago

Matt Stoller wrote a really interesting book giving a history of monopoly power in America: https://www.amazon.com/Goliath-Monopolies-Secretly-Took-World/dp/1501183087 https://www.amazon.com/Goliath-Monopolies-Secretly-Took-Worl... On my winter reading list :)

Wordball 7y ago
Thanks for the recommendation, I didn't read the article either.
- faizshah 7y ago
  Darn my pinning in google keep and reading the thread the next day has backfired on me! :)
ak217 7y ago
I plan to read it at some point, but I was really turned off by Stoller's relentlessly cloying self-promotion in his newsletter. I get it, he writes well on important topics, but he could use a bit more subtlety in pushing his stuff.
pkilgore 7y ago
It's really good!

dsfyu404ed 7y ago

TL;DR organizations respond to incentives and the incentive laid out in the legislation for the organization responsible for setting prices the government pays is to spend money, not save it and McKinsey takes advantage of that. Considering that a big player like McKinsey can't systemically overcharge the government and get away with it due to how noticeable it would be in terms of sheer dollar amount there are likely be other smaller players that are making even more absurd profits on their services and I wonder who they are since IMO their existence is more worthy of investigation than some BigCo walking right up to but not over the line drawn by the law (as BigCos do). This is not to say that the incentive structure shouldn't be changed to categorically prevent all this.

rootusrootus 7y ago
Okay, I'll ask the next question. How do I get to be one of those smaller players. Ha!
- smacktoward 7y ago
  You'd need to get your business listed on the GSA's schedule of approved contractors (see https://www.gsa.gov/buying-selling/purchasing-programs/gsa-schedules https://www.gsa.gov/buying-selling/purchasing-programs/gsa-s...). Being "on the schedule" means you've already been pre-vetted and deemed a legitimate vendor by the GSA. For government agencies, doing business with a contractor on the GSA schedule lets them skip a whole bunch of approvals and paperwork that they'd otherwise have to do if they just pulled in a vendor off the street. Getting on the schedule can be a long and bureaucratic process, but once you're on it you have a privileged position when it comes to winning government business. So if you want to sell to the Feds, you really want to be on that schedule.

benmarks 7y ago

Only recently discovered Mr. Stoller's media/reporting, and I have been absolutely impressed with his weekly mailing. Can highly recommend subscribing.

hwbehrens 7y ago

The IFF referenced in the article seems like a great example of how good-intentioned changes to incentive structures can have very warped outcomes, potentially years later. These kinds of effects keep popping up for me, even in industry contexts (e.g. stack ranking). Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied? How many "hops" of influence can you get away from the change before the effects are impossible to predict? Or does it just boil down to "ask very smart domain experts to think about the problem very hard for as long as you can afford to pay them"?

iudqnolq 7y ago
The key quote this is responding to: > ... less [to do] with McKinsey and more with an incentive to overpay more generally. It’s more likely something called the ‘Industrial Funding Fee,’ or IFF. The GSA’s Federal Acquisition Service gets a cut of whatever certain contractors spend using the GSA’s schedule, and this cut is the IFF. The IFF is priced at .75% of the total amount of a government contract. In the case of McKinsey, since 2006, “FAS has realized $7.2 million in Industrial Funding Fee revenue.” > ... The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time. In 2013, the GSA Inspector General traced a similar situation with different contractors. Managers at GSA overruled line contracting officers to raise prices taxpayer pay for contractors Carahsoft, Deloitte and Oracle. Government managers at GSA micro-managed and harassed their subordinates and damaged the careers of contracting officers trying to negotiate fair prices for the taxpayer. > How did the GSA get such a screwed up incentive...?... [T]o become more entrepreneurial as part of its “Reinventing Government” initiative, Bill Clinton’s administration implemented the Industrial Funding Fee structure. It worked in generating money for the GSA ... so well that Congress’s investigative agency found in 2002 that the GSA stopped having to rely on Congressional appropriations.
TheSoftwareGuy 7y ago
>Are there accepted mechanisms for systematically identifying these knock-on effects, and if so, what are they and how can they be more broadly applied? Yes, look for cases where A is rewarded, but B is expected: https://www.ou.edu/russell/UGcomp/Kerr.pdf https://www.ou.edu/russell/UGcomp/Kerr.pdf

oefrha 7y ago

Title’s terrible, I read it as taxpayers pay $3M a year per U.S. college graduate. It’s not even the original title, “Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor.”

CharlesColeman 7y ago
The actual article title is "Why Taxpayers Pay McKinsey $3M a Year for a Recent College Graduate Contractor," don't know if it was edited or the poster just chose something different.
ativzzz 7y ago
I've noticed a lot of posts on HN recently get their titles changed after posting, and this one will as well because it is quite incorrect as you pointed out.

thorwasdfasdf 7y ago

from the article >>> "In other words, the agency of the government in charge of bulk buying isn’t paid for saving money, but for spending too much of it. The IFF also incentivizes the GSA to get the government to outsource to contractors anything it can, simply to get more budget. The IFF has been creating problems like the McKinsey over-payment for a long time."

hef19898 7y ago
And yet there are people refusing to accept that fact, I met one of them. And that guy also failed to realize what an immense cash flow advantage government has against private sector companies. Government wants to spend money as soon as possible. That alone is a huge lever in procuring hardware. Not sure why they don't use it.

gcbw3 7y ago

And let's not forget the outcome of those illegally overpriced contracts: https://www.propublica.org/article/how-mckinsey-helped-the-trump-administration-implement-its-immigration-policies https://www.propublica.org/article/how-mckinsey-helped-the-t...

turk73 7y ago
Laws on the books got enforced? I don't get all the bleeding heart nonsense about deporting illegals. The reality is that a certain element of the population commits most of the crimes and makes life a living hell for citizens trying to go about their lives. It is the duty of our government to follow the law and follow through with helping legal CITIZENS maintain their living standards. Failure to do so both de-legitimizes government as well as turns our nation into a chaotic mess, something I would prefer that we avoid. I expect the government to enforce the law, not selectively enforce it, but actually enforce it. If we choose not to then we should repeal those laws. There really isn't a lot of middle ground here--selective enforcement is a liberal tactic used to push an agenda. No other country has been as lax about border security as the US has been and no other country has been as generous to the overall criminal element that benefits from lax/corrupt law enforcement. No other country has been so generous with taxpayer dollars spread around to both friends and enemies. We subsidize Europe, we subsidize North Korea and everything in between. When Trump brings up this sad fact, he is excoriated by the media. But that doesn't me he's wrong. While Americans are paying for the safety and upkeep of most of the rest of the world, generational Americans are being replaced by more pliant newcomers for political purposes while being told our rights don't matter and our needs don't matter even though it is we who pay the taxes to supply those things such as good schools for OUR children. It's falling apart--I'm watching it in our own school district and the especially in the neighboring one where ESL students have overwhelmed the entire system and its ability to budget. All brought to us by well-intentioned, but misguided, profit-seeking Christian churches. An observation: If the county I live in didn't have to arrest so many foreigners for committing crimes there would barely be any crime here. Also, the majority of child welfare cases relate to one issue: Drug/alcohol abuse. I don't even think there would be as much domestic abuse were it not for substance abuse. And what is causing all the substance abuse? Drugs brought to us by lax border enforcement, on purpose, to meet a demand from hopeless souls whose economic lives have been undermined by corporate offshoring and mass immigration, a double-edged knife stuck right in their backs. People, men especially, are giving up and committing suicide. If these communists succeed, you won't like your life under them, it will be seriously miserable. Not enough food, no heat in the winter, nothing that they promise will ever arrive. Worse, there will be no one left to ride to rescue. It is a dark future for humanity if America falls and we are falling.

cafard 7y ago

Many years ago, David Owen wrote about this--though the customers mentioned were in the private sector--in an essay called "Punks in Pinstripes". It suppose that it may have been collected in The Man Who Invented Saturday Morning.

txcwpalpha 7y ago

There's a lot to unpack here, but the general gist is that McKinsey is overpaid for mediocre services. It's hard to argue against that, and McK in particular does have some insanely unjustifiable rates, but I do think the author has a bit of a misunderstanding of why consultancies are hired in the first place. To be clear, when a consultancy like McK puts a 23 year old analyst on a project, the $50k/week bill isn't just paying for the knowledge in the analyst's head. The analyst is really just a vehicle to deliver the expertise of the actually-experienced consultants and knowledgebase of the entire firm. The experienced consultants don't have the time to sit and write out the powerpoint deck, so instead they throw as much knowledge as they can at the analyst and the analyst is the one who synthesizes it into something digestable by the customer. Is it worth $50k/week? Fuck no. But it is at least worth recognizing that you are getting more expertise than a sole bachelor's degree. Second, as someone who has both worked as a consultant at major companies like McK and worked on the other side of the table, and as someone who has long despised the consulting profession because of its overpriced bullshit, I think the author would be surprised at how effective even a measly 23 year old can be. As a consultant, it would drive me insane that my company was billing me out at $700/hr to help implement an IT system when all I was actually doing was reading and regurgitating the software's documentation and making sure that the client didn't ignore it. Surely the client could do this themselves and save the $700/hr, right? It took me a long time to realize that the answer to this question was actually no. The typical HNer will probably be surprised (and saddened, if you're like me) to realize that the average corporate worker bee is in fact not competent enough to do the most basic tasks, such as refer to documentation, without hand-holding. It is an unfortunate reality that sometimes a well-educated and well-vetted 23 year old analyst can do things much better than an 20-year industry veteran. Companies do know this, and this is what they are paying for, much to the chagrin of the rest of us. As a last note, the author mentions the possibility of just hiring an IT professional to do the work instead of hiring a consultant. This is something I also see come up a lot in consulting discussions. The reason this isn't done is because hiring an employee full-time brings on a lot of risk to the hiring company. It can take months to hire someone, many more months to train them, and then if they don't perform up to snuff, it can take years to build up a case to fire them, all the whole they are sitting on your payroll taking up budget. A consultant, on the other hand, can be hired in a day, trained in a week, and if needed, can be fired in a minute. You pay a premium for the agility to hire and fire them quickly, but that's the entire point.

deleted 7y ago

[deleted]

Vaslo 7y ago

Had a lot of experience with McKinsey doing projects at my company at different levels I’ve been in throughout it the years. When it’s highly technical things like implementing a new technology you know nothing about or a new manufacturing footprint that is tangible to perform, they do good work. Anything “Strategic” or fluffy I find a waste of time. They are excellent salespeople and do a lot to calm the C-suite but I rarely see these fluffy items driving employee happiness or the bottom line after spending millions.

mumblemumble 7y ago
Doesn't seem surprising. If it's implementing a specific technical process, there are measurable outcomes that must be met, and your client will know whether or not you met them. Senior leadership contracting an outsider to tell them how their own industry works and explain their place in it, though, is right up there with asking the Psychic Friends Network for career advice. They're just begging to be taken for a ride.
- mumblemumble 7y ago
  I'm realizing that I should temper my cynicism. "Senior leadership contracting an outsider to tell them how their own industry works and explain their place in it" might be a straw man. Strategic consulting could just as easily be, "We're considering expanding into this new market that we don't know as well, and we're hiring a consultant who specializes in that." Or, a previous employer hired a consultant for guidance on how to prepare the company to be sold.
- gadders 7y ago
  The old phrase about consultants is that they borrow your watch to tell you the time.
mdorazio 7y ago
FYI that's likely due to there being different organizations inside McKinsey (and all the big consultancies) with very different goals and employees. Technical implementation work usually comes out of a different org than management/strategy consulting.

z3ugma 7y ago

I was a technical project management consultant for a long time. The value that most orgs get from a consultant isn't really in the advice the consultant gives them, it's the political cover to make changes they knew they should make all along, but didn't have the social capital or the focus to make those changes until they had a person in a chair across from them.

Icathian 7y ago
Absolutely this. It baffles me how many people can understand and repeat ad nauseum "nobody ever got fired for buying IBM" but don't get the role a consultant plays in corporate strategy.
braythwayt 7y ago
This. I have done lots and lots and lots of enterprise sales and consulting, and a big part of bringing in outsiders is to provide the illusion of social proof. "Well, we had the experts in, and they found..." That sounds really, really terrible when put so cynically, but the flip side of that is to view it as insurance. If you bring the consultants in, hoping that they will recommend Plan A, and Plan A is truly terrible, a reputable consultant will find a way to sell you on Plan B, by couching it as "A few adjustments to Plan A." So in effect, yes, it is about making changes management wanted all along, but in addition to providing the illusion of social proof, you can also get an extra set of eyes to make sure that you don't completely footgun yourself. Sometimes. Maybe. If the consultants are good at both analysis and selling management on adjusting their plans...
- bonestamp2 7y ago
  Agreed, and even if the consultants aren't more credible than the intern people, they at least have less bias than internal people, which can sometimes give their opinion a little more weight.
- taneq 7y ago
  Another big part of it is liability management. If you're a high level exec and you make the wrong call, it's on your own head. If you hire a reputable expert and they make the wrong call, you're in the clear, even if it's what you would have done anyway.

xvector 7y ago

From the linked article[1]: I find it absolutely INSANE that highly specialized organizations like the NSA rely on McKinsey to direct their future operations. These people have intimate knowledge of their organization and culture, shaped and hardened by years of challenges and learned experiences. What can they possibly think bringing an outsider in to do a complete overhaul will solve!? Why can they not apply their own experience to solve problems in their own organization!? The proliferation of consulting firms baffles me. It seems like you’re just paying people for critical thinking. Unrelated: All of my classmates that went into consulting joke about how absurd the field feels to them. [1]: https://www.politico.com/story/2019/07/02/spies-intelligence-community-mckinsey-1390863 https://www.politico.com/story/2019/07/02/spies-intelligence...

zaptheimpaler 7y ago
> In the immigration story, MacDougall shows that the consulting firm encouraged ICE to give less food and medical care to detainees. I guess this is one big reason companies hire consulting firms - a consultant can act as a mouthpiece to say things you want people to hear, but not say yourself. A kind of moral laundry, absolving insiders from blame. Similarly they could recommend a risky business plan that someone believes in but doesn't want to stick their neck out for - if it fails, blame the consultants and move on.
txcwpalpha 7y ago
>It seems like you’re just paying people for critical thinking. That's exactly what it is. Unfortunately most organizations, probably even ones like the NSA, really struggle with doing any kind of critical thinking on their own. This is especially true when trying to decide on a future direction for the org: the org itself is most likely biased to just doing things the way it's always been done. In that regard, having an outsider's perspective, especially one that has also done work at other similar organizations and has taken note of all the various ways other orgs do things and knows what works and what doesn't, can be quite beneficial.
- xvector 7y ago
  Getting an outsider perspective - sure. That I can get behind, it can obviously be helpful. But getting an outsider to tell you what to do? A complete overhaul? That’s a leap. You’re going from getting perspective to getting directed by an outsider. A recipe for disaster, and from what we’re seeing here, that’s exactly what has happened.

sjg007 7y ago

I am guessing nothing will change unless there is significant outrage... I imagine McKinsey kicks back money into election campaigns as well. It seems worth it to become a govt contractor though..

riazrizvi 7y ago

I'm sorry but no case is made to support the idea that taxpayers are buying generic advice. Let's agree that the service buys a fresh college grad assigned full time. The grad might be a customer contact collecting and organizing customer issues before presenting them to internal subject matter experts, and then presenting those findings back to the client. I'd like to hear evidence to support how the service is fresh college grads simply using what they learnt in college and their chutzpah, which is what the article implies.

austinhutch 7y ago
> The grad might be a customer contact collecting and organizing customer issues before presenting them to internal subject matter experts, and then presenting those findings back to the client This might describe how technical consulting is done at big firms where the output is a product, but when the output is strategic documents... this is grunt work done by the front line analysts with a generic playbook. There is no "behind the scenes" strategy work like there is for dev. Maybe there is a lower analyst or intern that doesn't interface with the customer.
- riazrizvi 7y ago
  Respectfully do you work in the field, can you talk more to how you are able to do the work all on your own? Or is this an educated guess? If so, I doubt the service contract they were able to write was done by a fresh grad, I guess they are sourcing an internal legal team, and I suspect they have more internal experts to call on. It's common in legal and financial consulting to have junior staff do on-prem time consuming low value work that is a big waste of time for experts, who can be called in to join meetings remotely etc.
- txcwpalpha 7y ago
  FWIW this is the direct opposite of my experience working in both strategy and technical consulting. When it comes to dev work, it often actually was just a 23 year-old new grad writing code with little oversight (when I was 23 I actually wrote a lot of code that was reviewed by no-one, tested by only myself, and is probably still being used across a couple of F500s). Strategy work on the other hand was almost always reviewed and revised by several tiers of higher-up, more experienced consultants before being delivered to the customer.

billions 7y ago

Who's going to be the tax payer's hero in that government department? This squeaky wheel would effectively defund his colleague's cush jobs and likely his or her own. Not going to make a lot of friends but it will save the tax payer a fraction of a cent.

ismail 7y ago

Not surprised. This happened in South Africa. https://www.dailymaverick.co.za/article/2017-09-14-scorpio-amabhungane-how-mckinsey-and-trillian-ripped-r1-6bn-from-eskom-and-planned-to-take-r7-8bn-more/ https://www.dailymaverick.co.za/article/2017-09-14-scorpio-a...

xenocyon 7y ago

It's not just governments. Large corporations too frequently use McKinsey to make recommendations for things they want to do anyway (e.g. layoffs or restructuring). From the client executive's point of view, the money spent on a McKinsey contract effectively purchases credibility for these decisions.

alexchamberlain 7y ago

> ... Work of a 23-Year Old This really bothers me. I understand the point of the article is that they're charging a lot of money for an inexperienced consultant and no bias (discrimination) was meant, however, age is irrelevant. There are a lot of very "experienced" 23 year olds, as long as you're asking them about the work they've done. There are a lot of people in their 50s with very little experience (as their actual experience is irrelevant to the topic at hand or their actual experience has been very repetitive). I think we need to be a bit more conscious of unconscious bias towards age (in either direction).

wgerard 7y ago
I think the point is more like: It's hard to imagine a recent college graduate understanding the machinations of corporate entities enough to give meaningful advice about how to run more "efficiently". It's a bit like when a SV company is promising to revolutionize farm equipment and the founders have no background in agriculture - weirder things have happened, sure, but you can see why people are a bit skeptical. Yes, it's obviously a bit unfair because sometimes untainted eyes can be the most beneficial, but hopefully you can also see why there's a bit of skepticism.
SolaceQuantum 7y ago
I fully agree and believe it would be much stronger to say that this is a consultant with "x months of experience" than "23 years old" which could mean anything from 'worked in this field since I was 16' to 'hired yesterday'.
whiddershins 7y ago
By definition a 23 year old can’t have 25 years of experience in anything, even tying shoes. They can’t legally have worked full time in the United States for more than 7 years. Unless they are a wild outlier, they can’t have an advanced degree and significant years of professional experience doing anything. You kinda have a point but sensitivity to age discrimination towards the young in this sort of statement is a bit of a stretch imo. It’s also shorthand for absolute realities of time and space. Edit: Age discrimination also isn't perfectly symmetrical because: If you’re young, you will very likely get to be old one day. If you are old, you never get to be young again.

starpilot 7y ago

If you know anyone personally who works at McKinsey, you know them to be brilliant, humble, hardworking, and unfailingly likeable. Think Pete Buttigieg. It's hard to square this with the company's public reputation in anti-establishment screeds.

boudewijnrempt 7y ago
I guess you meant this to be sarcastic, right? Doltish, vainglorious, lazy and unfailingly boorish is what comes to my mind when I review the McKinsey people I've met.
- shantly 7y ago
  That'd all go for about 80% of my exposure to same, can confirm. Doltishness and lack of self-awareness re: the same sorts of things the consult on for others were especially surprising to me.
vincent-toups 7y ago
These qualities are not incompatible with being hatchet-men or giving shitty advice.
deleted 7y ago
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surak 7y ago

McKinsey have messed up government policies all over the world when it comes to McDonaldization of Society. They are using simple measurements to model how complex societies should work, unfortunately this is only works for McKinsey and their partners.

gwd 7y ago
Sounds a bit like a lot of "machine learning" actually (when it's done blindly). But do you have any specific references for the kind of thing you're talking about? It sounds plausible, but if I had a dollar for every time something plausible-sounding was completely wrong...
- WhompingWindows 7y ago
  Sounds like someone doing linear regression, claiming it's artificial intelligence, and charging $150k salary in a year for said data science...
- surak 7y ago
  I don't want to personalize the comment. But in Europe there are many examples where McKinsey implement a model to fix the money distribution problem. At the end, society gives up the culture and ideals. While the ppl get short handed the partners get a bonus. Still, I think this is mostly a problem of bad public leadership that is not approachable.

kfk 7y ago

The power point thing is so important though and consultants make amazing power points. It’s so important I’d hire a power point master just for explaining to executive all the concerns and issues me and my team have over our IT practices.

UltimateFloofy 7y ago

This is true for most NOVA contractors. In 2010-2012, Accenture and KPMG was pretty new to Federal IT Auditing and most of their consultants had never done anything IT related in their lives. It's ridiculous that accounting and tax firms like Arthur Andersen was able to rise out of Enron's scandal and were able to create catch-all IT divisions and win those contracts from the US government when they had no expertise.

deleted 7y ago
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12xo 7y ago

This type of stuff is endemic to all bureaucracies. Managers are too scared to make decisions so they look outside in order to justify any decision. Its maddening as these are the very people who are paid to make these types of decisions, yet they dont. And due to their employer being a public entity, they are not held to any real standards nor limited by such pesky matters as profits and productivity. It happens in local government,it happens at the state level and its absolutely enormous at the federal level. The waste is astounding, as are the underlying causes. Its so simple to solve, yet as long as we have the fox's guarding the hen houses, it will remain.

WhompingWindows 7y ago

Pete Buttigieg worked at McKinsey after his college days...which was only 10-15 years ago. I wonder if/how he was exposed to unethical practices and grafting like this...

sjg007 7y ago
If he was I expect he understand the issue and as President would work with Congress to reform the practice.
- thundergolfer 7y ago
  Why would you expect that? He’s been given opportunity to acknowledge the problems with McKinsey and he has avoided the issue.
  - sjg007 7y ago
    Do you have a reference? I’d be interested to read more about it.
    - thundergolfer 7y ago
      Here it is: https://nymag.com/intelligencer/2019/02/a-long-talk-with-democratic-2020-candidate-pete-buttigieg.html https://nymag.com/intelligencer/2019/02/a-long-talk-with-dem... I originally came across these comments of his when reading the piece written about him in Current Affairs.
      - sjg007 7y ago
        The latest article in the NYTimes says he is under an NDA so that may explain it.
        thundergolfer 7y ago
        He might be under an NDA with respect to his specific involvements at McKinsey, but he would not be stopped from commenting generally. He really just doesn't have a problem with McKinsey's various immoral practices. That's the simple way to see it.

jshaqaw 7y ago

Former McKinseyite here (and one reasonably skeptical of the firm as a whole)... nobody hires McKinsey for fresh college grads. That’s just something they tell fresh top of class Ivy League college grads to make them feel important. Clients hire Directors to give them peer level strategic counsel. How they technically allocate payment for time across consultants is just backfillling to get to a number already agreed to in advance.

jshaqaw 7y ago
By the way, this is not to denigrate the analysts at McKinsey who were in my time typically very smart, nice, hardworking, etc... They performed an important data gathering function. But the bill for their time has the sort of relationship you get when a Legal Assistant at Cravath photocopies stuff in your file. No they aren’t “worth” $500k/hour or whatever rate they bill at these days to photocopy but that isn’t the point. You are paying for Cravath and how that Cravath fee is broken down is largely irrelevant.
- throwaways66722 7y ago
  McKinsey does flat fees. The flat fees are driven by a rate card estimate, but there's no marginal cost to an extra hour... fwiw
  - speby 7y ago
    Thats because there is 0 additional marginal cost for their salaried consultants' time, too. Like many in the workforce, they are a paid a salary, and it's the same amount whether working 40 hours or 80 hours.
    - excursionist 7y ago
      Isn't unpaid overtime illegal?
      - jedberg 7y ago

ramzyo 7y ago

Lost me at the end ... took an otherwise detailed and nuanced analysis and concluded it with a broad generalization that smooths over all of the detail and nuance. “At any rate, at some point decades ago, we decided that most political and business institutions in America should be organized around cheating people. In this case, the warped and decrepit state of the GSA leads to McKinsey-ifying the entire government. Mr. Clinton, you took a fine government that basically worked, and ruined it. McKinsey sends its thanks.“

corporate_shi11 7y ago

As another comment here mentioned: outsourcing of decision making (consulting) is endemic to bureaucracies, whether that's in government, education or elsewhere. Has research been done on the amount of money saved/wasted on these consulting firms? Have any economists tried to evaluate whether or not these consulting firms provide any value at all beyond political cover for bureaucrats afraid to make or incapable of making decisions? From my brief experience working in a large University's bureaucracy and seeing how consulting firms took advantage of the school, I believe the public is being swindled by companies like McKinsey and others. If private corporations want to spend money on consulting firms without any tangible benefits, fine. But taxpayer money should not be wasted on these corporate vultures.

cafard 7y ago

I don't remember seeing HN articles about McKinsey before this month or last. Now there are three articles about McKinsey on HN, including one that says that the Houston Astros' sign-stealing exemplifies the decline of a McKinsified America. (Or maybe it's the Astros that are M'd.) How did it become the flavor of the month?

mdorazio 7y ago
Really? I see McKinsey posts come up at least once a quarter. Just do a google site search on HN for "mckinsey".
SigmundA 7y ago
I would like to know too, thought it was Baader–Meinhof effect.
wil421 7y ago
McKinsey comes up because they are an elitist consulting firm and HN is somewhat of an elitist forum. I am using elitist in a good way, although there’s certainly elitist attitudes on here. As someone who might join a Big 4 in IT consulting soon it’s nice to see what McKinsey is up to. It’s much nicer to see accountability for one’s actions.
- CobrastanJorji 7y ago
  > I am using elitist in a good way, although there’s certainly elitist attitudes on here. Wait, that last time you said elitist, did you also mean it as a good thing?
  - wil421 7y ago
    Only if I was part of the elite. ;-)
  - deleted 7y ago
    [deleted]
mayneack 7y ago

astanway 7y ago

$1M for a six week “EM plus two” engagement is on the high side, but it’s about par for the course for most McKinsey contracts. The standard is usually $500k-$1M for that kind of engagement. I think this is kind of a non-story for anyone who is actually familiar with the consulting business model. The brand is all McKinsey really has, and they are very quick to offer free engagements to protect the brand if true value isn’t being delivered.

abeppu 7y ago

On glassdoor it seems like that recent grad business analyst is taking home ~100k [1]. One of the articles earlier this week about McKinsey as "Capital's Willing Executioners" [2] talked about how the firm spreads a specific capitalist ideology. Given that (in this instance), the company is charging a 30x markup for the labor of that recent grad business analyst ... should we be thinking of McKinsey analysts as misguided exploited workers? [1] https://www.glassdoor.com/Salary/McKinsey-and-Company-Business-Analyst-Salaries-E2893_D_KO21,37.htm https://www.glassdoor.com/Salary/McKinsey-and-Company-Busine... [2] https://www.currentaffairs.org/2019/02/mckinsey-company-capitals-willing-executioners https://www.currentaffairs.org/2019/02/mckinsey-company-capi...

markhall 7y ago
While I understand the frame of thinking, you'll have a difficult time convincing any advocating party that someone making $100K+ is 'exploited'. Multiple examples probably can be found across a number of industries
tedsanders 7y ago
I worked as a management consultant. When my firm billed my time out at ~$10K/day and paid me ~$150K/yr (a ratio of ~20:1), I didn't feel exploited. That ~$10K/day covered way more than just my time. Here's what that billing had to cover: * My normal work hours [the thing we billed for] * My overtime hours * My annual bonus * My benefits & retirement savings & overhead & employer-side taxes * My time spent on business development & sales (most of which don't pan out) * My time spent on discounted or free projects performed to seed future sales * My time spent in training & development (probably ~4 weeks in the first year) * The time of managers spent training & developing me * My support staff (industry analysts, Powerpoint designers, internal experts) * Multi-million-dollar IT investments to build tools and databases to support me in my work * A couple first-class flights a week * A few nights a week at expensive hotels * Lyfts & Ubers everywhere * All meals expensed * The firm's partners working the case * New employees for whom we don't bill * Fees for market reports * Fees for expert interviews with industry executives (in some cases we'd do dozens of interviews a week, paying ~$1K/hr each) * Office overhead (rent, power, insurance, etc.) * Office support staff (HR, finance, janitors, etc.) * Profits for the firm's equity holders (Now a few of these expenses were billed separately I believe, but it shows the wide breadth of costs that a firm has to cover.) None of this opportunity would have existed without the firm, the network, the brand, and the partners. It's amazing to think that all I had to do was show up and work, and in exchange, I would get paid a high salary, get experience working with senior executives, get a prestigious brand on my resume, and accelerate my career relative to most career tracks. I don't regret the job, nor do I think it's surprising that there are crowds knocking on the door trying to get in. Looking at other industries, I wouldn't be surprised if a cashier at a grocery store made less than 5% of what they put in the register each day. And I wouldn't be surprised if a oil driller got paid 5% of oil that they extracted each day. Even if we're the ones touching the revenue, we're still a small part of what it takes to run a big business.

code4tee 7y ago

Have been on the receiving end of several McKinsey engagements. The work itself was generally not all that good. The knowledge of “experts” brought into meetings rarely contributed more than what a reasonably intelligent person could dig up on Google search results in an hour. They were also often farmed out on random staff augmentation functions that just annoyed the hell out of people. “Hi I need you to fill out this excel spreadsheet with 35 columns so we can put a presentation together... oh and if you could do that by 6 PM tonight that would be great.” That sort of nonsense so they could produce some nonsensical 50 page PowerPoint deck that nobody read. There were a few decent people there but by and large value was not generated. As others have pointed out a major motivator seemed to be to provide some C-level exec with CYA coverage to claim that programs being implemented were based on the advice of outside “experts.” In the two main cases I saw the McKinsey strategy ended up being a total disaster that seriously damaged the company and the C-level exec that hired them in both cases got canned as a result so in the end even the CYA concept didn’t really work.

choppaface 7y ago
Have worked with two ex-McKinsey consultants (hired as employees) and want to echo the observation that they tend to use their fast execution to generate excessive BS like large spreadsheets to win office politics. In one case, the guy had built a small org to fulfill a need that we had previously outsourced to a vendor. The company was thinking of signing a large contract with the vendor and he created a barrage of 20-page spreadsheets to try to justify his budget. He made me sit with him for an hour to extract random cost estimates for one of his sheets. The vendor ended up turning into a Silicon Valley unicorn... exactly the sort of opponent he wanted I guess. I think the trouble with McKinsey is they breed competitors who have never seen working products. If a product works, there’s probably a clear vision and a clear definition of value. When products are broken, winning office politics looks valuable, hence the McKinsey fascination.
edelans 7y ago
CYA = Cover Your Arse (I just found about that one, sharing if it can help others)

sailfast 7y ago

> The consulting firm’s sway at ICE grew to the point that McKinsey’s staff even ghostwrote a government contracting document that defined the consulting team’s own responsibilities and justified the firm’s retention, a contract extension worth $2.2 million. “Can they do that?” an ICE official wrote to a contracting officer in May 2017. Nope. This is illegal under the FAR. If they're doing it, they should be barred from Federal contracting. For what it's worth, I think this author gives the GSA a bad wrap based on the analysis of one individual. GSA has to do a LOT of work to award and manage a large number of contract vehicles that allow everyone in government to purchase goods and services at negotiated rates (which also saves them hundreds of thousands on hiring their own contract staff). The fact that the funding fee incentivizes GSA to help people spend more money is not necessarily a perverse incentive - it gives them the incentive to ensure their contract vehicles are effective vs. a normal procurement.

ineedasername 7y ago

I guess it doesn't change the value proposition much, but the whole "23 year old recent college grad" thing is a little overblown. Sure, a college grad like that might land somewhere with a title of "Business Analyst", but the higher the consulting contract the more likely it's some "distinguished" or at least older person with a shoe shine and 30 years of absorbing all of the management buzzword trends. I just had a round of them come through where I work, and 3 of the 4 met this description. The 4th was the younger "college grad" and they made him actually click the power point slides forward.

MFLoon 7y ago

Sort of a buried lede here. There's nothing shocking about overpriced, underdelivering consultants. But the bit about how the GSA is essentially profit sharing with said overpriced consultants at the expense of the rest of the government and taxpayers, via the IFF incentive structure, is pretty mind blowing. Another brilliant financial "innovation" by the Clinton Administration that's been quietly burning billions of taxpayer dollars to the end of significantly less efficient government for decades now...

l5870uoo9y 7y ago
It is not only a US pattern, go to every major European capital and the consultancies will be located right next to the ministries.
- MFLoon 7y ago
  I'm sure they are, but do the European governments equivalent of the GSA also have incentives to actually drive up the price of consulting contracts they source for their governments? It's not just the coziness that is concerning, but the particularly perverse incentive structure that essentially makes the GSA an inside agent of the consulting industry.
  - michaelt 7y ago
    Here in the UK we usually go for the traditional things: Consultants provide free assistants to ministers. Assistants advise that X is a superb idea. Government pays consultants for help implementing X, which they happen to be experts in. Then everyone impacted by X also hires the consultants to figure out what's going on. Later the minister leaves government and is hired for a £x00,000 salary for one day a week of 'advice'.
TrackerFF 7y ago
McKinsey, Bain, BCG, et. al. are all extremely close to state and industry in all countries. I'm from Norway, and every now and then someone will publish articles about the governments exorbitant use of consultants (McKinsey at that) for seemingly menial tasks which should be handled internally. Truth is, these management consulting firms have some very good advantages to keep their business model going: 1) Their alma matter is spread all over the world, usually in the upper management. 2) They get highly detailed information from all sides, and can tweak their best practices accordingly. 3) They take the blame, so as others have mentioned, they're basically a million $ CYA insurance for both politicians and executes alike. You could remove incentives like those mentioned, but I'm sure they'll find some other way to make money. They're so tightly integrated, and in so many places around the world, they probably have hundreds and thousands of strategies up their sleeves.

dboreham 7y ago

One of those "we're in the wrong business.." moments.

Matticus_Rex 7y ago

Ugh... I work at a much, much smaller niche-focused management consultancy. I'm really glad we don't do this or play political cover... but also it would be fantastic to make what they make. The perils of actually having expertise that clients need and not playing pork games, I guess.

m0zg 7y ago

Hmm. HuffPo ran a front-page hatchet job on Buttigieg disclosing that he's ex-McKinsey. Coincidence?

akayoshi1 7y ago

Consultant-ceptio

abbadadda 7y ago

> In other words, the agency of the government in charge of bulk buying isn’t paid for saving money, but for spending too much of it. I'm shocked SHOCKED to learn the U.S. government is not a well oiled machine free from fucked-up incentives or outright corruption.

TheMagicHorsey 7y ago

I don't know much about this article, but Matt Stoller wrote one of the most garbage articles about Netflix a while back, where he claimed Netflix has a monopoly on online TV show production. I think he lacks analytical rigor and basically bangs on a keyboard with strong emotions. Having said that, McKinsey consulting services really are 90% a finishing school for Ivy League liberal arts majors so they can move onto real work.

anonu 7y ago

My favorite McKinsey story: Back in 2005 UBS (big Swiss Bank) brought McKinsey in to figure out how to expand more rapidly in the US. The consultants suggested, "Hey, you have almost no sub-prime exposure. Everyone's trading this stuff! You gotta go in, and in a big way! It will certainly be a pillar of your US strategy." So UBS did... The result was one of the most severe debt writeoffs of the Great Financial Crisis.

jankyxenon 7y ago
Is the point that McKinsey didn't know the Great Recession was coming / it's causes ahead of time?
- anonu 7y ago
  The point is that they suggested a strategy that other big banks were already doing. There was no creativity in their suggestion in this regard.

Myrmornis 7y ago

It's depressing to think that there are people who aren't already aware that corporate consulting is pure BS, but I guess there are and so I guess it was worth writing it.