New York, March 7: After a selection process that many likened to the election of a new pope, McKinsey & Co announced on Thursday that its partners had chosen a new leader Ian Davis, the head of the firm’s British office, will take over as managing director in July.
During his three-year term, Davis will guide the firm as it copes with continuing economic uncertainty and clients’ reluctance to spend on costly consultants. McKinsey consultants will face increasing pressure on two fronts: from IBM, Accenture and other companies that have large consulting businesses with deep pockets and technological expertise, and from more traditional rivals like Bain & Co, the Boston Consulting Group and Booz Allen Hamilton.
How the firm responds will be closely scrutinised by its competitors and clients, many of whom say they regard McKinsey — the training ground for prominent chief executives like Philip Purcell of Morgan Stanley and Leo Mullin of Delta Air Lines — as a model and bellwether.
“The industry is at this point of departure and I think McKinsey, as the leader of the industry, is at a point of departure as well,” said Tom Rodenhauser, president of Consulting Information Services in Keene, N.H.
“There’s a lot of turmoil internally as to where McKinsey is headed.”
The selection of Davis to succeed Rajat Gupta, who served as McKinsey's managing director for three, three-year terms, may portend a shift in the firm's strategy. In the 1990s, Gupta oversaw a rapid expansion in the size of the firm and the reach of its offices. Some partners have worried that it may have grown too rapidly for its traditional, partnership structure.
Several people at the firm noted that Davis emphasised McKinsey traditions in a statement on Thursday.
“To build on Rajat's accomplishments, we need to stay focused on our core mission and values, which have nourished McKinsey’s success over the last seven decades,” Davis said in the statement. “Our commitment to our clients and our people are at the heart of everything we do.”
Consultants’ credibility in general has been undermined by corporate scandals at companies they advised and by the bursting of the technology bubble. McKinsey’s association with Enron, a much-touted client before its collapse in December 2001, “cast a little bit of doubt” on the firm, said Rodenhauser.
Corporate spending on consulting services has slowed sharply in recent years, rising barely 3 per cent, to $ 126.6 billion in 2001, from $ 122.9 billion the previous year, according to Kennedy Information, which tracks the industry. McKinsey, which is privately held, had $ 3.3 billion in revenue last year and the same amount in 2001, Kennedy estimates, down slightly from $ 3.4 billion in 2000.
As a result of tougher economic times, McKinsey has become much more selective in its hiring. It is still a highly desirable destination for business school graduates. It has also become more aggressive about advising associates to leave the firm — a process known as “counselling out” — in an effort to slow growth or, in some offices, to shrink, associates at the firm say. Overall, the firm employs about 7,000 consultants, down from 7,200 a year ago.