Transcription
[Applause] I don't have to tell you that it's a period of great global and technological change. It's exhausting and confusing. One industry absolutely thrives on that kind of widespread confusion, consultancy. There should be plenty of work for the folks who parachute in and tell companies how to navigate this confusing world. And yet, McKenzie, the 400 lb gorilla of strategy consultancies, has somehow fallen below fighting weight.
Hi, I'm Jason Palmer, co-host of The Intelligence Podcast. And I'm Tom Lee Develin, business editor for The Economist. Today we're going to be talking about McKenzie, a giant of the consulting world. Remember to listen to the whole episode. Just click the link in the description below.
Now, first, Tom, what are you seeing happening at McKenzie?
Until recently, McKenzie was growing at a stunning pace. Between 2012 and 2024, its revenue doubled, but that now looks to have tailed off. So estimates have it growing last year by only around 2%. Uh and it's also reduced its headcount significantly since the end of 2023 by about 5,000. So the firm which is turning 100 next year is is really at a at a pivotal and uncertain moment.
Now Tom, before we get into the the very present, let's look at the fairly recent past. You were talking about a period of of great growth. What was going on then?
Well, McKenzie likes to pretend that its services are sought, not sold. in the words of Marvin Bower, who was its longtime managing partner through the the 1950s and 1960s, but that really wasn't the case in its most recent expansionary wave. There was a very deliberate effort that was made to grow the firm and and a big part of that was an expansion in what McKenzie did. So, the firm invested really heavily in building capabilities in a number of different areas, particularly its digital practice. So it acquired at least 16 technology consultancies between 2013 and 2023 and more broadly it made a big push into implementing its its own advice not just around technology but also operations procurement supply chain and so on.
Okay. And coming to the present moment the doldrums you describe what's behind that. Well, the kind of macroeconomic uncertainty is is obviously part of what's going on. But interestingly, McKenzie's biggest rival, which is the Boston Consulting Group, BCG, has continued growing actually very robustly. So, there is a lot more to the story here. BCG has played a similar game to McKenzie, expanding its offerings, especially around digital, but my sources tell me that it's done a much better job at deploying and retaining the specialists that are needed to make that kind of advisory work successful. And the consequences have been pretty dramatic. In 2012, McKenzie was about twice as big as BCG. Last year, it was only about a fifth larger. And if things continue on their on their current trajectory, BCG will actually overtake McKenzie by revenue the year after next.
But it's not just as simple as one big consultancy firm eating the lunch of another for you.
Well, yes. So, there's also new competitors emerging here, especially around AI. Alongside the upheaval of of global trade, this is kind of the big topic on CEO's minds right now. and they are turning to firms like McKenzie and and BCG for help with it, but they're also increasingly turning to new types of partners and and one that is experiencing incredibly rapid growth at the moment is is Palanteer. In the second quarter of this year, its revenue grew by nearly 50% yearonear. It's it's now more valuable than Chevron or Coca-Cola. And Palanteer is really interesting because it's it's a software company. It sells tools that among other things help companies feed their data into into AI models. But its approach is to deploy its engineers with clients to help them embed the technology which ends up coming into really direct competition with some of the AI services that that Mckenzie is offering and other technology providers. Even the likes of of Open AI are starting to offer similar consulting-like services. consulting like services. Send sending your guys into a company to to make it better. It is kind of consulting like you have to admit, but but these guys are really just narrowly focused on the AI, right? Are they a threat to the kind of the broader model for the likes of McKenzie?
Yeah, I mean there are there are certainly limits to how much of a disruption this will be and and there's plenty of people that argue that consulting is is always going to be a sideshow for for many of these firms who would who'd much rather be seen by investors as as software companies. But the reality is is that a lot of bosses are very focused on AI and they're very frustrated with their challenges around making productive use of it. And so I suspect that a lot of technology providers are going to conclude that it's it's actually really essential for them to be in the trenches with clients, not least because working this way will help them improve their tools. And so what you may see is this pushing McKenzie and its traditional competitors back towards their more traditional role as a strategic adviser. And the good news for them is that for now that that core business is is growing healthfully. But you know eventually AI could disrupt it too.
What do you mean by that?
Well, I'll put it this way. Um strategy projects from my experience basically bundle together two things. One is a lot of kind of deep profound cogitation and then there's just a huge amount of grunt work crunching numbers and preparing PowerPoint slides that underpins that and and that's usually done by the most junior people on the team and before long a bot is going to be able to do a lot of that and if you're a senior partner you might think that sounds great because you can have fewer of those junior people on your books but if a lot of the work behind a project can be done by a technology that clients can basically access themselves. That may start to lead to a kind of compression in in fees. And McKenzie and other strategy consultancies are betting that their libraries of intellectual property will give them some protection here, which is which is true. And they've all trained up their own bots on these corpuses of of intellectual property. But I think it would be a big mistake really to underestimate how quickly these AI models could improve. So McKenzie's second centuries is going to present some some very profound challenges for it.
But I'm reminded of the notion that people often overestimate the the short-term effects of a technology and underestimate the long term. Once all those AI tools get democratized and everybody's working from the same sheet in that regard, McKenzie goes back to what you yourself called the the sort of core role as strategic adviser. They'll just simply find new things to advise on in a new world where AI is really sort of spread out. Don't you think?
Maybe um you know consultants have an incredible knack for jumping on whatever the next management fad is and and turning it into a into a successful line of business. So so possibly who knows over the long term what's going to happen. I think what we can say for certainty is that the industry is headed for a period of a lot of change.