Duff McDonald’s The Firm is an enjoyable history of consulting firm McKinsey. One of the things I found most interesting was the strength and durability of the firm’s network, in spite of the fairly brutal approach the company has had to hiring and retention historically.
‘Even for graduates of Harvard, landing a job at McKinsey is hardly a lifetime appointment. Most young consultants spend just a few years at the firm before being tossed back out into the workforce. Only one in six hires stays at the company for five years or more. This merciless system, [is] widely referred to as “up-or-out’…’
‘[McKinsey]…began formally employing the policy in 1954, inaugurating a relentless performance review cycle. At least once a year, the firm’s consultants are subjected to an exhaustive review, wherein dozens of their colleagues are asked to comment on their progress and performance. The pressure doesn’t subside over time, either. In 1963 the firm extended the policy to principals—junior partners—for whom “up-or-out” was rechristened “grow-or-go.” It was later applied to directors, who had to “lead or leave.” Once they hit age sixty, partners are pointed toward the door, through which they are strongly encouraged to exit at the age of sixty-five.’
‘The average age of McKinsey’s professionals was thirty-two about fifty years ago; it’s still thirty-two today. You don’t hold the line on a number like that without constant churn, especially at the top.’
At first glance, while you might expect the above to at least produce a good number of individual performers within the business, you’d also you’d expect the culture described above to be one that people would be glad to leave (and badmouth once they’d escaped).
Instead McKinsey seems to have developed a culture which lets people go while still letting them feel a part of an elite club. McKinsey refers to its network of former employees as ‘alumni’ and, crucially, ex-McKinsey employees (for the most part) seem to retain this connection as well.
McDonald describes this phenomenon like this:
‘Like almost no other firm in existence, McKinsey becomes a part of its people’s self-image. Years after leaving the firm, ex-consultants still use “we” when referring to McKinsey, even in the present tense.’
The impact of this is seen in a number of ways. Firstly, McKinsey’s alumni often end up in plum positions in other firms – the kinds of positions that are able to retain high fee consultants like McKinsey.
‘More than seventy past and present CEOs of Fortune 500 companies are McKinsey alumni. A 2008 study by USA “Today calculated that the odds of a McKinsey employee becoming a CEO at a public company were the best in the world, at 1 in 690. The closest rival was Deloitte & Touche, at 1 in 2,150. McKinsey is certainty the most efficient producer of CEOs the world has ever seen. In 2011 more than 150 McKinsey alumni were running companies with more than $1bn in annual sales.’
Secondly, the sheer number of alumni gives McKinsey access to an important network of contacts:
‘It wasn’t until the turn of the century that the number of alumni became truly meaningful. By 2000, there were more than 19,000 living professional alumni of the Firm [later in the book a figure of 23,000 alumni is quoted in 2011]…Perhaps the only alumni network with more reach and lifelong relevance to its members is that of Harvard University. And there’s no small amount of overlap between the two.’
All of which begs the question – how has McKinsey been so successful at making ex-employees feel like ‘alumni’?
A good answer to this is provided in the form of a quote from Bill Matassoni who worked for McKinsey and then rivals Boston Consulting Group for five years but ‘still considers himself a McKinsey man above all else. “BCG asked me how come their alumni aren’t as happy as McKinsey’s. I told them it was simple, that when a guy left BCG they shat all over him and considered him a failure. When people leave McKinsey, they are counseled out and are proud of their time there.”’
McDonald expands on this: ‘There is no McKinsey boneyard, in other words; you’re still McKinsey, even after you’ve left. Even those who lose turf battles and feel forced to leave eventually come around to warm and fuzzy feelings again’.
The rewards for McKinsey have been enormous. Aside from the financial performance and growth of the firm, it continues to advise companies at the very highest level. In this way, McKinsey’s elite network creates a virtuous circle: they hire some of the best people, who leave and go to other firms where they hire McKinsey, so McKinsey consistently does some of the most interesting strategic work, so it can continue to hire some of the best people around who want to do the best jobs (within – and eventually, outside of – McKinsey), etc.
Not every firm can create an elite network. But there may be smaller networks in specific niches that are open to other professional services firms. More broadly, treating departing people well can create future opportunities and can advance a company’s reputation. The McKinsey example shows that even former employees can play a part in the continued success of a firm, and that creating a culture where leaving isn’t a kind of failure can be a positive step.
