Thursday, September 10, 2009

pre-mba: "The McKinsey Way" (book 1 of 3)

Students entering the top-MBA programs quickly learn how to multi-task, and prioritize their time. Beginning with the actual application process (which often starts a year in advance), and continuing along with finding financing and arranging accommodations, MBA students must be quick out of the gate. They learn to focus and formulate their personal goals early. Whether the goal is to do well in school, or to build an MBA network of friends & colleagues, all these goals ultimately boil down to getting a good job.

So, what constitutes a good job? This really depends on the unique needs and desires of each student. Traditional post-MBA career options include consulting, entrepreneurship, finance, industry, and marketing. The ideal job for someone interested in marketing might be to work for a top public relations firm on Madison Avenue. Other students would love to start their own tech venture in Silicon Valley. Nevertheless, most MBA students would agree that the most competitive jobs, which also pay the highest salaries, are those in consulting and finance. Top consulting firms include McKinsey, Boston Consulting Group, and Booz Allen.

Those seeking careers in finance must make a further decision on whether they want to work in asset management, brokerage/private banking, investment banking, private equity, or venture capital. Top finance firms include Goldman Sachs, Morgan Stanley, Merrill Lynch (now Bank of America), and Citigroup. Kudos to you if you manage to score a job in consulting or investment banking! Your odds of landing one of these jobs is less than the acceptance rates at most top-MBA programs (less than 10%). Yet even more rare (and prestigious) are the jobs in private equity and venture capital.

Those of you interested in consulting careers might consider reading the McKinsey trilogy of books written by ex-McKinsey-ites, Ethan Rasiel and Dr. Paul Friga. Within ten years of writing his first book on McKinsey, entitled "The McKinsey Way," Rasiel has witnessed "the Firm" double its number of professional consultants to 9,000, and increase its number of locations by almost 20% to 89 offices globally. McKinsey continues to thrive in up and down markets that included the tech bubble bursting, 9/11 terrorist attacks, and the worst economic recession since the 1930's. If you want to join this illustrious firm, then according to Rasiel, getting hired by McKinsey is simple:

"Be of above average intelligence, possess a record of academic achievement at a good college and a top business school, show evidence of achievement in all previous jobs, and demonstrate extraordinary analytical ability. [And] If you manage to clear all those hurdles, the key to joining the Firm may be the case interview" (p. 161).

But you don't have to work for McKinsey to benefit from applying its approach to your own business problems. The cornerstone for getting inside the McKinsey mind is the MECE (pronounced "me-see") mantra - an acronym that stands for "mutually exclusive, completely exhaustive." And this doesn't refer to the hours you'll be working as a consultant. Although they will also be mutually exclusive AND completely exhaustive!

The process begins once the client comes to you with a problem. You must first dissect the problem into its simple constituent parts. For example, if the client says, "We need to make more money," then you should immediately respond, "Well, how do you currently make your money?" When the client answers that they make money by selling product X, then the obvious question becomes, "How do we sell more of product X." Next, to make this initial root question conform to MECE standards we exhaustively look at ALL the factors that might effect sales of product X, including production costs, distribution channels, and marketing. Then, re-phrase the question(s) into "action statements." For example, "We can increase product X sales by: reducing our unit costs, changing the way we sell to customers, and improving the way we market to customers (this construct can be teased out further by constructing an "issue tree").

Once organized into this framework, we can form our initial hypotheses on how to solve the problem(s). Finally, we test our hypotheses by verifying them against the facts ("trust, but verify"). Facts trump all else. Ethan Rasiel warns us, "Hiding from the facts is a prescription for failure - eventually, truth will out" (p. 5). The McKinsey system relies heavily on the availability and accuracy of these facts, some of which are gathered through its proprietary "PDnet" system - a collection of recent "client engagements," as well as internal research and publications, such as "The McKinsey Quarterly". Such an analytical framework that breaks propositions down into their "atomic facts" would make the logical positivists of the 1920's that occupied Oxbridge very happy. Having studied philosophy during college, it seems that a background in philosophy would be great training for being a consultant, because you must be a generalist, yet also possess the analytical ability to delve into the nitty-gritty. Rasiel quotes one Engagement Manager who said, "You have to be fundamentally skeptical about everything" (p. 2).

Another feature of McKinsey that can benefit other organizations is their "free-flow of information" philosophy that is nurtured through a lateral hiearchy. While there exists a clear pecking order: Director of Client Services (DCS), Director, Partner, Senior Engagement Manager (SEM), Engagement Manager (EM), and Associate, McKinsey adopts an open-door policy. You MUST keep others "in the loop." Sometimes the best ideas come from your teammates, Rasiel advises, "Keep an open and flexible mind. Don't let a strong initial hypothesis become an excuse for mental inflexibility" (p. 21). There will be times, however, when even the best ideas (no matter who comes up with them) just cannot be implemented for the client due to "political reasons, lack of resources or inability."

Rasiel also discovered several other useful rules while working as an associate at McKinsey (from 1989 to 1992) that might help you. For example, for some unknown reason the 80/20 rule - that 20% of the work is responsible for 80% of the results - seems to apply to many facets of life, including business. As alluded to earlier, it is also important to consult your co-workers, rather than have to re-invent the wheel. And if you're chatting it up with your EM, then you better be familiar enough with the client solution to be able to articulate it in the 30 seconds it takes to ride down in an elevator with him. A final useful point to remember is that on your quest to discovering the holy grail (big picture) be sure to go after little victories by "picking the low-hanging fruit." While you don't need to work at McKinsey to develop this analytical frame of mind, the Firm is filled with such people, and the lessons are universal in their application.

3 comments:

  1. Thanks for the generous write-up. I'm glad you enjoyed the books. I'm even more glad that, ten years on, readers are still finding them useful. One quick correction: I've only written two books, The McKinsey Way and The McKinsey Mind. A third McKinsey book, The McKinsey Engagement, came out earlier this year and was written by Prof. Paul Friga, my collaborator on McKinsey Mind.

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  2. That's great, Ethan, thanks so much for the comment. If you ever wonder who reads this blog, then let that be a lesson to us all, to always be on top of your game, because you never know who's reading! You'll have to let me know when you're in NY for a book-signing. BTW have you read Stewart's "The Management Myth"? Quite a different take on MC although not as useful in its application as the McKinsey trilogy.

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