Has the McKinsey Model Ruined our Management Practices?31. May 2022
When top executives are no longer recruited from within but hired from consulting firms and jump between positions in vastly different industries, they may lose connection to the company’s value creation. In any case, there are indications that the consultants’ technocratic management practices are out of step with the current time
Years ago, I attended a leadership course at Harvard Business School. It was an exciting experience. I remember, in particular, being amazed at one aspect of the professors’ stories and analyses: the consulting firm McKinsey & Company was highlighted again and again.
It was almost as if a symbiosis existed between the training of the top managers of the future on the one hand and a particular consulting house and its methods on the other. It was clear that the professors both had an in-depth knowledge of McKinsey’s methods and business model and worked closely with the consultants.
The American magazine The Atlantic has also taken note of this connection. Daniel Markovits, a professor at Yale Law School, points out in the article “How McKinsey Destroyed the Middle Class” that large American companies have transformed in the last half-century – under the immediate impression of the management philosophy of McKinsey and similar consulting firms.
In the United States, this has meant a fundamental shift away from a management model, which strengthened the opportunities of ordinary employees and added new competencies to them, and created upward movement in the corporate hierarchy. The traditional American management model, which dominated from the 1940s until the early 1970s, meant, for example, that:
- Ordinary employees and production people carried out significant management tasks such as ongoing planning, work organization, and coordination
- Large companies such as IBM invested up to 10 percent of an employee’s time in fully paid competency development
- Positions were initially for life, which meant upward movement in the hierarchy over the years and a real possibility that an ordinary employee could one day become a member of the Executive Board.
This distributed and involving management model meant that regular employees and middle managers increased salaries faster than top management. The model created the American middle class.
But with the ascent of management consulting firms like McKinsey & Co from the 1970s onwards, the management paradigm became different, according to Markovits. Strongly inspired by the American economist Milton Friedman’s dictation that corporate social responsibility is to create profit for shareholders, the consultants focused on optimizing and trimming the companies to make the greatest possible financial profit.
The solution? To eliminate or recalibrate the companies’ “fat layer” in the form of middle management. This led to the abolition of the idea of lifelong employment and a continuous reorganization of companies, whether the results were good or bad. New year, new top manager, new strategy.
Of course, the human consequences have not been insignificant. Daniel Markovits describes, for example, that when IBM abolished lifetime positions in the 1990s, local bosses asked the area’s nearby gun dealers to stay closed until employees had absorbed the shock. Ordinary production workers not only had job security removed but their job functions were fragmented and management and planning functions removed.
So what’s the situation today? The relative wages of the American middle class have not risen since the 1970s. Top executive salaries have gone through the roof compared to the regular employees. Previously, an average director’s salary was 20 times that of a production employee. Today, the executive pay is up to 300 times that of a production employee. At the same time, there has been a massive shift from paid jobs to contract hiring and subcontractor positions in companies like Benetton in Europe and Uber in the US.
And where has the leadership role ended? At the top of the hierarchy, where all planning and management are now concentrated. And where does the recruitment for top management come from? No longer from internal employees and middle managers who have painstakingly worked their way up. Now the top management candidates come from elite institutions like Harvard Business School and of course from the consulting firms themselves. A trend that extends far beyond the borders of the United States and has become the global norm.
Stock price as a guiding star
It’s a stroke of genius, really: creating a management model that makes the world’s largest companies rely on advice from companies like McKinsey and on recruiting their consultants for management positions. It is no longer essential to know the company’s culture, values, and practices; it is crucial to master the management tools of advisers and have one thing in mind: value for shareholders.
Although many of our largest companies in Denmark are fund- or family-owned, we see elements of the same management paradigm in Denmark, where top managers and board chairs in companies such as Lego, Danfoss, Grundfos, and Ørsted switch between companies. When was the last time a Danish top manager “grew up” in the company they became head of? And what has been lost?
However, today’s critical question is whether McKinsey’s management model, built over the past 50 years, which many larger Danish companies have put themselves in the slipstream of, is still sustainable today?
I would argue that the time has come to reinvent our management paradigm. Not so we return to the past. But so that leadership matches the present.
The time calls for empathy
We are in an era that calls for empathy rather than efficiency and human understanding rather than technocracy. We are in a turbulent time where we (again) see the value in decentralized, distributed, and collaborative management, where employees take on significant responsibility.
Many companies are in the process of reinventing their organizational model. Perhaps we are now at a point in time where it is more relevant to emphasize coherence and continuity rather than breaking up and tearing down? And finally, we are in a time where values and bottom lines other than the purely economic count.
However, one question remains: If it was McKinsey’s management thinking and advice that destroyed the middle class of the United States, then what kind of thinking and advice should rebuild it?
Will a new type of consultant emerge who can bring more unique perspectives and fresh models into play? I think the answer is yes. And I think the designers’ thinking and methods will inspire them strongly.
Some of Denmark’s leading design agencies tell me that they focus more and more on their customers’ internal organization. Rethinking the way we create organizations –ƒ- finding the replacement for the McKinsey management model – is one of the biggest, most challenging, and creative tasks that leaders can take part in.
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