Transcription
This is just going to be that next evolution of there'll be a whole bunch of things that a couple years ago we did for our clients that our clients will do for themselves. And the imperative will then be to move to the even more complicated questions. And to your point, what are what are clients going to pay us for? They're going to pay us to find ways to double their market cap. And until we get to CEOs who say, "I don't want to double my market cap," I think there'll always be a more complicated set of questions and opportunities out there.
So, I'm here with Bob Sternfelds, the global managing director of McKenzie. And Bob, thank you for being with us.
>> Oh, it's great to uh great to be here. I'm excited to uh to have a chat with you. So I want to start McKenzie uh is turning maybe has turned 100. HBR by the way we're 103. So welcome to the Century Club. You know how would you summarize the company's 100-year legacy? To what extent has McKenzie created the ideas that have shaped the business world or to what extent is it about identifying and suggesting best practices that come from elsewhere?
I guess I would start with the nature of how we do our work. And the idea is, look, we we co-create with our clients and when we're at our best, it's um it is it is figuring out how do we help clients get to places they can't get to themselves. And and so, you know, the whole notion in some ways of credit of did you create something novel or did you, you know, best practice is a bit of a maybe the way we frame is we're co-creating with clients to help them come up with things that they may not have come up with themselves or we might not have come up with themselves. And and you know we we clearly invest a boatload in proprietary IP. We invest over a billion dollars a year in innovation, new thought, new ideas. McKenzie Global Institute for example, which is a bit of our independent research tank, but we've now created Mackenzie Health Institute. I think if you do look at their history, a lot of that is novel thinking. You know, the most recent looking at a a global balance sheet and and kind of saying how's the world when you look at assets and liabilities. That's not a best practice. That's a that's you know new new thought. But equally part of the reason we stay global as an operating model is then at the more micro levels, the clients that we serve don't want to understand what the leading edge innovation is in their particular country. They want to understand innovation around the world and perhaps even cross sector and that is part of our model. So I'd probably say it's if I had to guess it's probably half half on this around where are there truly novel co-creation and where is this idea of um of figuring out how do you bring innovation around the world to clients who may not have access to that innovation based on their you know the reality that they're in.
So, one area of innovation obviously is AI and I'm sure you're advising companies all the time on how to adapt to an AI-driven world. I I want to talk about that, but I I'm interested in the internal discussions that are happening at McKenzie about this. You know, to what extent is AI shifting the economics of your industry, headcount, pricing, productivity, you know, are margins improving? Are they under stress? I mean, how what are the internal conversations about AI for your business?
AI. We haven't talked about that at all.
>> No, you should. It's really cool.
>> Can Can you educate me on it?
No, I'm just uh I'm just kidding. Um I mean, it's hard to have a conversation in any context right now um that doesn't link back to to some form of AI. You know, I think this question around AI and how how it impacts McKenzie, there's kind of two two sides of that coin. There's a a client-facing side and then there's a what are the implications on McKenzie and kind of the way that I summarize it is there's a unique moment to help all of our clients reimagine themselves leveraging this technology and to be able to do that we have to rewire ourselves to be able to deliver that and uh I may just start with a bit of you know what what I'm actually hearing from clients around the world across all industries and across across all geographies and you know I I really hear in the truth room maybe two things on the one hand an enormous belief in the potential for this wave of technological change and and that's everything from enormous productivity gains in areas like customer care or you know back office processes but also to growth things you know if you think about radically shortening the time of drug discovery and what that actually means for longevity and and and life and that's topline growth. So so folks are excited and and they're they're believers, but at the same time from the the conversations that I have with with CEOs, you know, they'll often say, "Hey Bob, so do I listen to my CFO or my CIO right now?" My CFO is in my ear that we're spending a lot of money on technology, but we're not yet seeing enterprise-level value from this. And so, do we really need to be at the cutting edge or why can't we be a fast follower? Let other folks figure out where this is and then we'll adopt quickly because it's a lot more efficient to be a follower than a than a leader. CIO is saying, "Are you crazy? This is one of those moments and if we're not in the lead, we're going to get disrupted." You know, we spent a lot of time looking at at least what we think the answer is here. And and it's interesting. I know we spent a lot of time talking about technology, but what we're finding is half, if not more of the secret sauce is organizational change as opposed to technology implementation. This is for large large enterprise. And you know, it's things like, well, what does your look like after you're implementing data? Could you have, for example, a much flatter organization that cuts out a lot of middle layers and makes your organization faster? When you think about really complicated workflows, think about a a mortgage process. You got all these steps, you know, origination, credit scoring, collection, after service, etc. Those are all departments in a in a bank. Well, why do you have four or five departments in a process if you can really enable this through AI? Can't you break those walls down? And so we're spending a lot of time thinking through not only what's the strategy and how do you implement, but how do you change the organization? How do you rewire the organization to realize the value and and if you can get that right, all of a sudden the CFO and the CIO are actually on the same page. But we're finding that's harder and it's taking longer than people thought. And so I do think we're going to be in this period where really enterprise fundamentally changing themselves. Yes, enormous potential. It's going to take a little while to get there.
So then you kind of say, okay, what does that what does that mean for McKenzie? Which is I think where you you started the question, Audi. And it means a couple things for us. One, um, you know, we we're applying this to ourselves, and you know, I often get asked, how big is Mackenzie? How many how many people do you do you employ? And um I I now update this almost every month, but my latest answer to you would be 60,000, but it's 40,000 humans and 20,000 agents. And a little over a year and a half ago, that was 3,000 agents. And and I originally thought it was going to take us to 2030 to get to one agent per human. I think we're going to be there in 18 months. And we'll have every employee enabled by at least one or more agents. And we're going to have a workforce that is human and agentic. And how do we how do we kind of navigate that? That's kind of one piece of of what are the assets and and technologies that we're building in ourselves. The other big piece is how does it change our model? We're coming around to the conviction that we're migrating pretty quickly away from let's call it pure advisory work which was a lot of the origins of of our firm and kind of a fee for service model etc. And what's it moving to? It's moving to much more of an outcomes-based model where we say look let's identify a joint business case together and we will underwrite the outcomes of that of that business case and and it aligns our interests with our clients a lot more and I think will be the way of the future.
Now, I mean, AI is is going to get better, right? We're still in the early early phases of generative AI. You know, if if technology can continue to commoditize, you know, even the kinds of analysis and insight that, you know, a McKenzie has long provided, you know, what what will clients actually be pay be paying for when they can probably do a lot of that themselves?
>> The kind of problems that we have tackled with our clients over a hundred years has not been static. It has changed radically and uh even you know I'm now considered a dinosaur in our firm because I'm a little over 30 years with us but the stuff that I did when I joined as an associate 32 years ago we wouldn't consider even doing right now why because clients do that stuff themselves and we are solving much more complicated interconnected questions with our clients And I think what this is going to then mean is this is just going to be that next evolution of there'll be a whole bunch of things that a couple years ago we did for our clients that our clients will do for themselves. And the imperative will then be to move to the even more complicated questions. And to your point, what are what are clients going to pay us for? They're going to pay us to find ways to double their market cap. And and until we get to CEOs who say, "I don't want to double my market cap." I think there'll always be a more complicated set of questions and opportunities out there.
>> What is the evolving skills profile then of a of a management consultant? You know, what are you and do you even know yet? I mean, what what are you looking for in new hires? And that must be evolving pretty quickly.
>> I might frame it in what are some things we're confident about now and then what are some things we're exploring. When I came into this role and it was a little over four years ago, I asked our talent attraction team, "How we doing on attracting talent?" And and I got a we're doing great, Bob. We're doing great. I said, "Why?" And said, "Well, you know, we we get over a million applications a year and we we hire anywhere between 8 and 10,000 people and and even the million aren't a normal distribution, right? It's there's some of the brightest minds in the world that are applying. So effectively, what's the problem? Why are you asking me? You know, let me let me go back and do my job." And and I kind of kept asking the question, but well, how many profiles are we are we really looking for? What what are we systematically screening out? And and it turned out that really when you bo it down worldwide, there's really only 500 pathways that would lead you to McKenzie. And that wasn't tying with what our own organizational research was saying that the half-life on skills was getting shorter, that people were too focused on paper ceiling, did you have the right credentials? And so we we actually applied analytics on ourselves and took the last 20 years of data and said what are the skills and characteristics that are most likely to make partner in McKenzie because that's it's not perfect but it's kind of a marker of of success. You know only one in six hires make uh make partner. And it turned out we had some bias in our system. I'll just give you I mean it was McKenzie so we had like 50 different implications but I'll give you the biggest three. One was that we were too focused on did you have perfect marks versus did you have a setback and recover and the applicant who had a setback and recovered was more resilient and more likely to be a higher probability of making partner in McKenzie and we weren't screening for that. So we've changed the process to look for resilience in the in the application process. It may sound shocking, but we weren't indexing enough on had you had real experience in a significant way working with others. Fundamentally, we're about helping our clients change. And you know, if you've worked if you've done a team sport or if you've worked in retail, you know, working your way through college, you've had to engage with others. And it's built a skill, a human-to-human skill that um we're now indexing a lot more on. And and then the last one was um was interesting. Did you have the aptitude to learn new stuff versus had you mastered the subject that you chose to study? And uh my my youngest guy used this one against me actually when he was um he was ch middle guy was changing his major for the third time and I was a little frustrated with him and he's like but dad you published a paper that said you know if you have the aptitude to learn new stuff and I'm like yeah but you have to do well in the subject that you go to send send his resume to me.
>> It's the only time
>> it's the only time he quoted me. I was like really? But um but it did get us to then change our assessment techniques where we purposely create an environment where you will no human in the world will have any pattern recognition in this environment and we figure out how well do you do in an environment where you have no pattern recognition. You just have to go figure things out. So those are some of the skills now we know we're moving to. We've launched more of an exploratory look now going forward where you say, "Okay, but if everyone gets super human with these AI tools, what do you want to add on top of this resilience, teamwork, ability to learn new stuff?" That part I just told you I feel pretty solid about. This part I'm going to tell you is is places we're more in exploration mode and just be be honest with you. Uh and one of them is um well, what do the models not do well? Right? What do the models not do well? One, they don't aspire. They're not good at setting the right aspiration level. And so when you think about what great leaders do is they help an organization set the right as what should we aspire to? And so how do we start to look for and develop the skills of leadership? Leadership is going to be durable in a post-AI world because one of the great things leaders do is they help set an aspiration and get people to stretch. So we're we're kind of focusing on that. The second is judgment. And you've seen time and time again the these models don't there's there's not truth in the model. There's not judgment in the model. Humans need to impose those parameters. So how do you build judgment and how do you build that capability? And then maybe the the last one we're we're we're spending a lot of time on is um the models are inference models. They're great at a linear approach to problem solving, which is kind of what we've been teaching for the last hundred years. What they're not great is discontinuous leaps, truly novel thinking. And so we're starting to figure out where are backgrounds that are going to be more creative to come up with things that aren't about the next logical step, but are about a discontinuity. And so we're going back to liberal arts degrees and kind of saying, hey, you know, let's come back to some of the things that might have been deprioritized in the past to see if we can get a little bit more creativity.
We've sort of looked looked back, we've looked forward, you've talked about the some of the celebratory stuff that's going on. I need to ask though, you you've also had, you know, your share of unwelcome publicity in recent years. And I'm talking about Oxycontin, bribery, bribery charges in South Africa, conflict of interest accusations uh in the US and elsewhere. How do you account for all of that? How do you look at what happened and and why?
Well, I'm glad you asked and you know this has been I think it's been a real soul-searching for us starting about four or five years ago of um really two questions. On the one hand, where should we be more humble and and learn from our mistakes and at the same time where should we be more courageous and just say look we disagree with you and we're even though we'll face criticism we're going to push back because that's what we believe in. And and let me kind of parse each of those. You know, look that some of the ones that you mentioned fall clearly in the in the humble camp. And I think some of the great learnings that we had if I just take take two in particular the work with opioids and our partnerships in South Africa you know what we learned is that we have to have a higher diligence around client selection and we put in place a framework that is a really robust assessment now that looks across every aspect from the country, the topic, the institution, the individuals, and the operating environment to say, is this a client that we actually want to bring in to the firm? And and so one of the languages that I've used with our partners, and you know, it's hard to drive change in a partnership is um you all grew up with the idea that one of the privileges of a partner is to commit the firm. And I'm not saying that's not the case anymore, but you don't do it alone. You do it with risk professionals. And and we invested about a billion dollars. I brought in the head of um internal audit from Apple, the head of compliance from Walmart to basically kind of modernize us around these processes. And it's why I also said, look, we apologize. We got those wrong. And but we don't want to set out just to remediate the problem. We want to set out to try and set the standard for professionalism for our industry. And so I think that is an important lesson of how do you learn from your mistakes? Stay humble, but not seek to just repair them, but seek to actually make make yourself better. And we've had a lot of learnings around that. McKenzie has learned a ton from this, and we're setting out to make ourselves better. And and one of the things that I've tried to open myself up to both to regulators and to clients is look, these are the new protocols we put in place. Do you have any ideas on how we can make them better? Because even what we've put in place, I'm not sure we're ever going to be done on this front. So, I just wanted to close the loop on that. Like, I'm obsessed with we got to be a journey to try and aspire to set the standard for professionalism for our our our profession.
But then, as you say, look, the lifeblood of what we do and it's why so many great talent from around the world come is the kind of impact that they can have with clients. I mean, from the outside, you know, it looked like McKenzie was committed to growing as quickly as possible in markets all over the world, you know, with with by design relatively little centralized oversight. And again, from the outside, that sounds like a a recipe for trouble. Is that is that a fair analysis?
>> Uh, no, not really. It's easy to kind of say that are you from the outside, but the truth of the matter is you have three or four forces that are going on here. You know, on the one hand, there's a an increasing scrutiny on the side of um of media, governments for for all institutions. And um and so one of the things that, you know, that we learned through this process is there are some things that we're going to be criticized for that that we're just going to push back on. We got heavily criticized for our work in hard to abate sectors on their transition issues and it was, you know, McKenzie's accelerating climate degradation etc. And we pushed back and said no look if you're going to be committed to climate transition you have to work with the hardest to abate sectors. It's just naive to say that you're going to solve this problem without that. And so there's a portion of this that was rooted in just more transparency, more criticism. And I'm trying to build a bit of thicker skin. There's a portion which was an evolution in our organization model that said look as as we do get bigger and as the world gets more complicated and more requirements are thrown in, we do need tighter compliance standards. And um this is where the idea that we should have the same compliance and accountability standards as a publicly traded company even though we're not publicly traded was I think one of the greatest changes that we've been through in the last six years. And growth has never been our objective function. Um we're privately traded. We don't have quarterly earnings. You don't see McKenzie talking about oh we had revenue growth of this or that because the ethos internally is that we're a profession not a business meaning that we want to put our clients interests ahead of ourselves and the objective should be are we doing distinctive work versus you know any kind of work but without the right controls you can't guarantee that and so one of the things I think we learned is even though we had that as our ethos and the objective function was never grow at all cost. If you don't put in place compliance, you're not going to actually be able to enforce those standards. And and it's painful for a partnership to give up some of that autonomy. But I think it's one that we now have pretty immediate. You you never get 100% uniformity in a in a partnership. But I think there's pretty good agreement that um these things have made us better and it's worth giving up that autonomy to actually preserve the integrity of the enterprise.
>> I'll throw one more, you know, sort of critical trope your way, which is, you know, that people would say consultants prescribe frameworks but don't have to live with the consequences. How do you ensure that McKenzie's advice is more than a PowerPoint strategy? You know, that it creates real lasting long-term impact.
>> I hope we get out of PowerPoint entirely at someday, and I say that with love to Microsoft, but um but it's it isn't about providing a unique insight. It goes back to this notion of what we really aspire to be is to be impact partners with our clients and um we're on a change journey of moving quite frankly from a model that was advisory to one that um underwrites outcomes and and today Audi about a third of our revenues total are underwriting outcomes. So, it's not, hey, you handed me a PowerPoint, great. It's we collectively signed up for this outcome together, and we're tied on this journey all the way through until that impact is delivered. My hope is that that crosses a majority of the revenues by the time I'm done being the global manager partner.
>> We've been around 100 years, you've been around 100 years, we're all presenting important ideas. Uh, there are others as well. And yet, this is hard, right? Running a business is hard. Nobody really has has cracked the code forever. Where do you think leaders most consistently, you know, get things wrong?
>> I think there is some mix of a couple things that are, at least in my mind, increasingly important. You know, one is this um this hunger and thirst to acquire new information. And whenever you get too confident, too overconfident, I think change for the negative is going to come. And and so how do you have this almost ruthless quest for let me continue to question new things and and maybe also from all levels in the organization. Often the best ideas are embedded somewhere lowered out. The second and Audi you kind of linked it when you talked about both of our organizations is how much do you do this yourself versus do you think about partnerships and I think increasingly we're seeing when people collaborate across the value chain etc you you find disproportionate gain and yet our organizations aren't geared to collaborate well right we're just not and so thirst for new a focus on on collaboration And then finally, I would say, and maybe this is kind of a sign of the times, maybe not, but um speed matters. You know, one of the things that we've we've studied to death is um faster organizations outperform slower organizations even if they make more mistakes. And yet, we're not wired to do that. There's such risk aversion in large enterprise. If we could lean in a bit more to that, I think great things happen.
So on the issue of management, what what seems to be fundamentally different today, you know, versus how companies have to adapt to, you know, jolts in geopolitics or or with technology, you know, what are you seeing in terms of kind of new management paradigms that are taking shape today?
>> I kind of look at it from the lens of the discussions that I have, which is what are CEOs focused on, right? What are what are some big topics right now that that are occupying the minds of senior management teams and their discussions both amongst themselves and and and with boards and and as you can imagine that that varies based on where you sit in the world. But there are some themes to your question Audi that seem to be transversal. I'd be lying if one of the themes wasn't one of the ones that we talked about, which is how do I get value from this technology, you know, and and what is everyone else doing because this is hard. And so I would put that as one of the the themes of how do I transform my enterprise through this this revolution in technology that we're seeing right before our eyes. The second big theme is um how do I build more institutional resilience? Because I'm increasingly I'm talking now in the in the guise of a CEO of the mind that unfortunately things will never go back to how they were there's going to be a world of continuous shocks and so in a world of continuous shocks do I have enough institutional resilience in my organization and when you burrow under that you know what what folks often say is I need I like sports I'll give you a sports analogy I I need to play offense and defense at the same time. So, I need defense that I need enough buffer, enough cushion to be able to withstand something that I don't see coming. But I also can't just play defense. I need some capacity to take some bold bets even when I may be getting hit with exogenous shocks. Can I play offense and defense at the same time? is my simple version of how do you build um institutional resilience? And then maybe the last one, if I were to just give you three, is um I haven't met a CEO yet that thinks that their organization model is perfect. Haven't met one. And you know, a lot of the the seminal thinking actually comes from some stuff. I'm going to date myself here, but I told you I was doing history. A 1959 paper in HBR by Gil Cle was a this was before he became a GMP. He was one of my predecessors, but it was about creating a global organization and it was the precursor thinking to the matrixed organization. And if you kind of look at almost every large enterprise today, there is some version of a matrixed organization. And I hear different tension points from CEOs about why their org is one of the bottlenecks in getting done what they need to get done. It's too slow. It's too cumbersome. I can't resource reallocate. It doesn't help me with complicated geography decisions. Whatever it may be, Audi, I hear a lot of questions about what should my future organization model be?
>> So, in 10 years time, what would you like McKenzie to be known for that it is not known for today?
I think it's got to be a mix of what do I hope we're still known for and then what might be some new things, right? I because it's not going to be just stuff that McKenzie isn't known for today. I I hope the part that it's continued to be known for is um leadership factory of the world, right? And and one of the things that's been very exciting is no matter how long folks stay with us, they tend to do pretty well wherever they go. And and you know we produce more CEOs than any other institution in the world and I hope that's still the case in 10 years. Our are folks coming to us and you know sorry this is just my direct language you know maybe the experience isn't easy and maybe it's pretty hard and they got a lot of tough feedback but do we make you a better leader no matter how long you're in McKenzie 2 years 30 years but do you leave McKenzie a better I hope that remains. I hope the part that is new to your point is something that's inflight today but I think not really well known which is we complete this journey from being an adviser to an impact partner and that McKenzie is not known for hey they gave me great advice but you know if it worked that was because they were smart and if it didn't work it's because I didn't implement uh which is the you know the joke right but as it moved to you know what we designed a business case together and these guys underwrote the same outcomes that I took to the board and we went on this journey and um we kept at it until we got to someplace I didn't think I could get to. I think that's the the part that I'd love to land fully in this next decade.
>> Bob, thank you very much for for being here. That was a great discussion and congratulations on turning 100.
>> Thank you. I enjoyed it.