Everyone’s Trusted Advisor: The History of McKinsey & Co.

How did the company which insiders affectionately call ‘The Firm’ and outsiders know as ‘McKnife ‘ come to be? This week we will explore McKinsey’s history and firm-specific application process (which include case interviews and the “PST“). Today, we start with its history.

McKinsey & Company was founded in Chicago in 1926 by James McKinsey as “James O. McKinsey and Company”. Previously, McKinsey served as an accounting professor. The firm had both an accounting practice and a management engineering practice. One of the first firms to provide executive management with strategic advice, which it called management engineering, it focused not only on inefficiencies and badly run companies but also helped healthy companies position themselves wisely.

In 1937 James O. McKinsey died unexpectedly of pneumonia, leaving the remaining partners in disagreement over how to run the firm. The management engineering practice was split into two affiliated firms: McKinsey & Company and McKinsey, Kearney & Company. McKinsey, Kearney & Company continued the Chicago office under guidance from Andrew Thomas Kearney, while Martin Bower continued McKinsey & Company from New York.

Under the guidance of Martin Bower, the first pillars of modern management consulting and ‘The Firm’ as we know it today became clear. Bower, now regarded as the ‘father’ of modern consulting, served as McKinsey’s managing director for 17 years, from 1950 until 1967, and continued to advise the firm long afterwards. In 1952, he bought the rights to the name McKinsey & Company and Kearney continued his firm as ATKearney & Associates, as it is known today.

McKinsey still sets the industry standard, even though it now faces competition from both The Boston Consulting Group and Bain & Company (the three of them collectively referred to as MBB). As the consulting giant, it has faced controversy as of late: it was held partly responsible for the collapse of Enron and two of its alumni now face charges on insider trading.

McKinsey is the largest strategic management consultant today, with 100+ offices in more than 45 countries and a staff of over 9000 consultants. Constantly looking for the best performers, it’s a top employer of MBA’s and grad students, but few survive the selection process. Want to be really well prepared for the case interview? Keep in touch for the articles on McKinsey’s PST and case interview methods due later this week.

Rating: 8.9/10 (9 votes cast)

The Minto Pyramid Principle Explained

Earlier we discussed the MECE-principle, which states that every grouping (of arguments, information, data, etc.) should be mutually exclusive and collectively exhaustive. I’ll assume that you’ve read it, so if you didn’t: read up before continuing with this post on the Minto Pyramid Principle.

Barbara Minto was the first female consultant at McKinsey and was tasked with improving communications in the USA and later in the newly opened international offices in Europe. She discovered that all consultants suffered from the same problem: communicating effectively. It triggered her to develop the Minto Pyramid Principle.

Minto’s Pyramid Princple is one way to structure information in an effective manner. Instead of reasoning bottom-up, you should reason top-down, in a pyramidical fashion. By following the pyramid principle, you structure the information up-front before presenting it, which gives the listener a framework to interpret your info and prevents him from forming his own (wrong) framework. Take for example the following text, which does not follow the Minto Pyramid Principle:

Linda does not speak French, though she speaks some German next to her native English because of some charity work in Berlin. She loves snow and hiking in the nature, and is fed up with the busy city-life in New York. She wants to move to Canada to make a fresh start. Therefore she should move to Toronto instead of Quebec.”

This example provides the listener (or in this case, the reader) with a lot of data, followed by the interpretation in a conclusion. This presentation of information does not follow the Minto Pyramid Principle: it is not top down. If you would present your data followed by your conclusion like this, the listener might come to a different conclusion than you. He might for example think that Linda should move to a city on the west coast of Canada. To prevent this from happening, you should follow Minto’s Pyramid Principle:

Linda should move from New York to a Toronto suburb:

Toronto is in Canada

A Toronto suburb is closer to natural beauty than New York

In Toronto, people speak English (instead of French as in other parts of Canada, such as Quebec)

The Minto Pyramid Principle can also be used in business situations, for example during case interviews. The following text does not follow the Minto Pyramid Principle:

When we look at the company sales data, we see that there has been a decline over the years. We also face increased competition, even though we introduced new features two years ago and relaunched the product. These new features required a new factory to be built, which also increased costs. We have to increase market share to attain an economy of scale”

Now, with the Minto Pyramid Principle applied:

To regain profitability we have to improve market share by cutting prices:

Lower prices will increase sales

Lower prices vis-a-vis competitors will increase our market share

Increased volume helps us create economies of scale

The “key line”, the top of the pyramid has to be actionable and must be supported by the arguments following it. These could be key lines themselves and be broken down into sub-arguments (who all should be MECE). Since the Minto Pyramid Principle is used by all consultants, using it during your own case interview is a big plus. The Minto Pyramid Principle is difficult to grasp though. For a more thorough treatment of the Minto Pyramid Principle and how to effectively apply it during your case interviews I recommend buying my book or taking a look at the book by Minto: The Pyramid Principle: logic in writing and thinking.

Also, feel free to comment if you have questions!

Rating: 8.5/10 (20 votes cast)

Consulting Resume Scanning

Did you know your resume and cover letter get about 30 seconds of attention each?

I will feature an update about consulting resumes and cover letters shortly, as they are an important part of the application process and something I also elaborate on in my book on case interviews. I stumbled upon this image however, which reminded me about the importance of resume content, not formatting. More later!

Source.

Rating: 8.5/10 (4 votes cast)

MECE categories: Pyramid Principle

Before I’ll explain the Minto Principle later this week, I’ll explore the term MECE (pronunciation: me see) with you, as it’s an important term in the Minto Principle, case interviews and consulting in general. MECE stands for ‘Mutually Exclusive, Collectively Exhaustive’ and is the consulting way of representing complex information in an easy way. Let’s look at both components separately.

Mutually Exclusive

If you are categorizing data, the MECE-principle dictates that the categories should be mutually exclusive. This means that it should not be possible for a member of group A to be a member of group B. To make it less abstract, an example of categorization that is not mutually exclusive:

Grouping of people according to their color of clothes worn, as people can wear clothing with different colors, and others can wear these colors as well.
Grouping of people according to their hobbies, since people can have multiple hobbies and two people can do the same hobby.
Grouping companies according to their products, as they can sell multiple products at the same time.

You get the picture, I guess. So mutually exclusive categories are, for example: age, sex, nationality (often, at least). We got the ME- part, what about the other two letters?

Collectively Exhaustive

Besides being mutually exclusive, the categories you pick should also be collectively exhaustive: all options/all information should be included in the categories you pick. This way you can be sure that there’s nothing you missed in your analysis. For example, the decision of a firm to acquire a competitor can be based on both financial and non-financial factors. These factors should then be broken down into new factors who are also (ME)CE. Another example is the profitability framework (example from my book below): it’s collectively exhaustive, as profit can be broken down into revenues and costs. No other factors influence profit.

In addition, the profitability framework is also mutually exclusive, as revenues can never be costs and vice versa. These factors can also be broken down into new MECE-factors. Revenues can be broken down into numbers of sales and the price: the revenue per sale.

Practice

During your case interviews, you should strive to be as MECE as possible when structuring your case. Don’t get bogged down while striving for perfection though, as you’ll only have limited time. But how to make sure you get it right the first time? As with most things: practice makes perfect. Apply the pyramid principle and MECE-thinking in real life: when choosing a vacation destination, while choosing between dinner options or when picking a new car.

More info on case interviews and the pyramid principle in a new post later this week. Also check out my book and the official Pyramid Principle book by Minto.

Rating: 8.7/10 (12 votes cast)

The Bain Case Interview

The Bain case interview

After a short break, we are continuing our company profile series with the Bain case interview. We’ve already looked into the history of Bain, giving you an idea of what sets Bain apart from the other MBB (McKinsey, BCG, Bain) firms and we will now investigate how these differences effect their case interviews.

Case Interview basics

In short, a case interview is a 3-month consulting engagement distilled into one hour. Instead of a team of consultants it’s just you trying to answer the client’s question, though you can ask the interviewer for information. The basic approach is to formulate a hypothesis as to why the client is losing money/should acquire another firm/enter a foreign market and then you gather information in an attempt to (dis)prove your hypothesis. If you do this in a well-structured manner, you’ll be able to quickly drive down to where the problem lies and give actionable advice to the “client”: the interviewer sitting in front of you.

The Bain Case Interview

As with other consulting firms, Bain takes its cases from what it sees in practice. With some common sense, you can predict that it’s very likely to get a private equity case in one of the New York offices, while you are certain to expect an automotive case in the Detroit office.

Asking around during recruitment events also pays off. This will help you get a feel for what kind of people work at your local Bain office and what kind of business cases you’ll get. But more importantly is that often, the people you meet during these events are also active in other parts of the recruitment process. A previous (positive) social encounter can offset a less than perfect resume or a rushed cover letter during the first selection rounds.

Even though Bain & Company (the consulting firm) and Bain Capital (Mitt Romney’s private equity firm) are split entities, their work is alike. Bain & Company is often asked to perform due diligence and performs a wide array of private equity services, aside from its consulting practice.

At Bain, there’s also a great emphasis on the quantitative part of the case. Expect number crunching, and a lot of it. All of this math is done without the help of a calculator: so make sure your math is up to par. You don’t want to make mistakes in front of the interviewer, even if he allows you to make one or two mistakes. Math mistakes are especially painful, and I’ve seen many qualified candidates screw up the rest of a case because a math mistake flustered them.

So do your research, visit those recruitment events, brush up your math and practice your cases. If you want some great frameworks with full explanation and “look over my shoulder” cases so you can learn from another person’s mistakes: get my book on case interviewing.

Good luck, and share this article with someone who’s also applying for Bain.

– Stephan

Rating: 8.4/10 (5 votes cast)

Case Interview Basics: Preparation

My whole blog revolves around case interviews and how you should prepare for them. Much of what I teach is from first hand experiences with case interviews, from both sides of the interview table. I already trained many students in both one-to-one sessions as well as group presentations on how they should approach the case interview.

Case Interview Training

Below, I’ll share the basic case interview preparation presentation I used during my training sessions. I’m looking for ways to make this a video, so you can actually hear me speak, as I’m aware that a lot of information during presentations comes from the presenter, not his slides.

Case Interview Training

View more PowerPoint from SteveCB

Rating: 8.2/10 (5 votes cast)

Even Starting Strategy Consultants Earn More

Considering a job at McKinsey, BCG, Bain or another strategy consultant? Good news for you, as you’ll be earning more than your peers:
Image source

On average, strategy consultants earned about 10% more than their peers in other consulting fields, with consultants in the Project Management and Business Process Improvement getting the least: a ‘mere’ £ 41,000 (~ € 48.000 / ~ $ 63.000) a year, including bonuses and benefits. Maybe a compensation for the many hours they put into their work?

Payment in the UK is still below that of US ( $ 72,000) and Europe (€ 55,000) averages, so if you are in for the money you should considering starting in those two areas. More info can be found in the full report (pdf), which also includes the salaries of senior level consultants up to partners.

Want to make sure you ace the interview and get the job at the firm you want? Keep updated on this site by signing up for the Feedburner newsletter and buy the book when it comes out!

Rating: 8.5/10 (2 votes cast)

How many hours does an associate consultant work?

The chart above (source) shows the average workweek of an associate consultant at Bain. As you can see, there are both up- and downtimes and the average is 56 hours a week. Interesting to see that training, vacations and time ‘on the beach’ (without a project) are around the 40 hour per week mark, while projects see spikes of up to 80 hours, especially when deadlines near.

What do you think? Is this a good work-life balance?

Source: The Case Coach

Rating: 9.0/10 (1 vote cast)

Math can break your case interview and how to prevent it.

So, without using a calculator: what is 40 x 36? What is 12,5% of 160? What percentage is $ 2 million of $ 14 million? If we sell product A 5.000 times for $ 1,49 a piece, what is our revenue?

You should be prepared to answer questions like these during your case interviews, whether they are part of the case you’re solving or fired at you by the interviewer in an attempt to test your quantitative skills. All without the use of a calculator. So why is the interviewer looking for skills you probably have not used since elementary school and in a world with calculators in every mobile phone?

The importance of math

First of all, being able to calculate both fast and correctly in your head is of great value in the consulting world. You’ll deal with large sets of numbers on a daily basis and being able to calculate these numbers without cranking out a calculator every time just saves lots of time. It will also help you get a sense of the magnitude of these numbers:

I always want to know how an interviewee reacts to large numbers. Does he or she calculate them with ease? Does the candidate grasp the effects of a cost saving, for example? A cost saving of $ 0,56 per product might not look like much, but what if we produce 9,5 million each day? I want a future consultant to grasp the magnitude of these numbers, which is difficult at best if you need that calculator every time.

It helps finding mistakes in calculations, caused by a typo during a late-night spreadsheet marathon, for example. Is the total yearly market for running shoes in the US really only $ 2 million a year?

Secondly, being able to calculate quickly in your head looks good in front of the client and prevents embarrassing mistakes. The interviewer wants to know whether he can take you to that client presentation and rely on your performance if a client asks you what the effects would be if they increased prices by 15 %.

Getting your math skills up to par

So, you probably haven’t been calculating in your head since elementary school, but you do want that job in consulting: what to do? Unfortunately, there’s no easy way out: calculating in your head is a skill and the only way to improve it is by practicing it over and over again. You’ve probably ditched the old math books, but luckily there are plenty of great resources online. Below, we’ll go through some of them.

Kofprechnen Trainieren

A tool you can download and use offline, if you wish. Even though it’s in German, the software is pretty straightforward. A great way to practice that I’ve used myself and unlimited arithmetic fun!

SIKORE

A tool you can use both offline and online, doesn’t feature a time component, but if you’re on a Mac and can’t use Kopfrechnen, this is a great alternative.

Youtube: Math Tricks

This video series teaches you some handy math tricks and is worth a look. Changing the techniques you use for calculus might lead to confusion during the interview, so if you only have one week to prepare for the interview, I suggest sticking to your owntrusted methods. Secondly, this video links to a (paid) teaching method that I do not endorse.

[tube]https://www.youtube.com/watch?v=hLdKsKep1og [/tube]

Good luck with practicing!

– Stephan

Rating: 9.1/10 (18 votes cast)

Bain and Company: History

This week, we will focus on the second ‘B’ in the infamous ‘MBB’ acronym, which stands for McKinsey, Boston Consulting Group and Bain. We will delve into the history of Bain and Company in this first part, and focus on the specifics of their case interview in our second post.

Bain and Company: History

Bain and Company was founded in 1973 by Bill Bain, a former BCG vice-president. Instead of following up Bruce Henderson, the founder and president of BCG at the time, Bill Bain decided to form his own consulting firm, taking six other BCG consultants with him to form Bain & Co. It differentiated itself from BCG, McKinsey and other competitors in a few ways. For one, it decided to take on only one client per industry, using codenames instead of the real company names and forbidding consultants to walk around with client business cards, all to guarantee that no information could be leaked to competitors, at least not through Bain. Another innovation was its longer-term approach, in which Bain did not only deliver rapports, but also guided the implementation. This longer term approach is also seen in Bain’s policy of accepting stock in lieu of fixed fees. It is proud that its clients outperform the stock market by 1:4.

Bain Capital

In 1984, Bill Bain asked Mitt Romney to found Bain Capital, a private equity firm with ex-Bain consultants but without any other connection to Bain & Co. It applied consulting techniques to the firms it invested in, often turning the business around. This method has now been copied by many investment firms, as it was very successful: Bain Capital started with only $37 million in assets, which has grown to over $ 66 billion today.

Crisis

In the late 1980’s increased competition, economic downturn and overstaffing brought Bain & Company in a crisis. Next to these external factors, internal fights amongst its managers almost brought Bain & Co. to its knees. Mitt Romney was brought back from Bain Capital to bring the company back to shape, loosening its one-client-per-industry policy and re-establishing Bain’s financial health. This allowed the company to grow once again to it’s current size of over 5,500 employees.

Bridgespan Group

To help charities and nonprofits allocate funds, the Bridgespan Group was incubated by Bain in early 2000. It applies (for-profit) consulting techniques to the complex world of not-for-profits to help these charities with their problems, ‘spanning the bridge’ between profit and non-profit.

Next week, we will delve into the specifics of the Bain case interview. Want to ace your interview with confidence? Check out my book and its features, including a free preview now!

Rating: 9.1/10 (8 votes cast)