How McKinsey Plans to Survive AI (and Reinvent Consulting)

This is just going to be that next evolution

of there'll be a whole bunch of things that a couple years ago we

did for our clients that our clients will do for themselves.

And the imperative will then be to move to the even more complicated questions.

And to your point, what are what are clients going to pay us for?

They're going to pay us to find ways to double their market cap.

and and until we get to CEOs who say, "I don't want to double

my market cap," I think there'll always be a more complicated

set of questions and opportunities out there.

So, I'm here with Bob Sternfelds,

the global managing director of McKenzie.

And Bob, thank you for being with us.

>> Oh, it's great to uh great to be here.

I'm excited to uh to have a chat with you.

So I want to start McKenzie

uh is turning maybe has turned 100.

HBR by the way we're 103.

So welcome to the Century Club.

You know how would you summarize the company's 100year legacy?

To what extent has McKenzie

created the ideas that have shaped the business world

or to what extent is it about identifying

and suggesting best practices

that come from elsewhere?

I guess I would start with

the nature of how we do our work.

And the idea is, look, we we co-create

with our clients and when we're at our best, it's um

it is it is figuring out how do we help clients get to places

they can't get to themselves.

And and so, you know, the whole notion in some ways of credit of

did you create something novel or did you,

you know, best practice

is a bit of a

maybe the way we frame is we're co-creating

with clients to help them come up with things that they may not have

come up with themselves or we might not have come up with themselves.

and and you know we we clearly

invest a boatload in proprietary IP.

We invest over a billion dollars a year in innovation,

new thought, new ideas.

McKenzie Global Institute for example,

which is a bit of our independent

research tank, but we've now created Mackenzie Health Institute.

I think if you do look at their history,

a lot of that is novel thinking.

you know, the most recent looking at a a global balance sheet

and and kind of saying how's the world when you look at assets and liabilities.

That's not a best practice.

That's a that's you know new new thought.

But equally part of the reason we stay global as an operating model

is then at the more micro levels,

the clients that we serve

don't want to understand

what the leading edge innovation

is in their particular country.

They want to understand

innovation around the world

and perhaps even cross

sector and that is part of our model.

So I'd probably say it's

if I had to guess it's probably half half on this around where are

there truly novel co-creation

and where is this idea of

um of figuring out how do you bring

innovation around the world to clients who may not have access to that innovation

based on their you know the reality that they're in.

So, one area of innovation

obviously is AI and I'm sure you're advising companies all the time on how

to adapt to an AIdriven world.

I I want to talk about that, but I I'm interested in the internal

discussions that are happening

at McKenzie about this.

You know, to what extent is AI

shifting the economics of your industry, headcount,

pricing, productivity, you know, are margins improving?

Are they under stress?

I mean, how what are the internal conversations

about AI for your business? AI.

We haven't talked about that at all. No, >> you should. It's really cool.

>> Can Can you educate me on it?

No, I'm just uh I'm just kidding.

Um I mean, it's hard to have a conversation

in any context right now

um that doesn't link back to

to some form of AI.

You know, I think this question around

AI and how how it impacts

McKenzie, there's kind of two

two sides of that coin.

there's a a client-f facing side and then there's a what are the implications

on McKenzie and kind of the way that I summarize it is

there's a unique moment to help all of our clients

reimagine themselves leveraging this technology

and to be able to do that we have to rewire ourselves

to be able to deliver that

and uh I may

just start with a bit of

you know what what I'm actually hearing

from clients around the world

across all industries and across across all geographies

and you know I I really hear in the truth room maybe two things

on the one hand

an enormous belief in the potential

for this wave of technological

change and and that's everything from

enormous productivity gains in

areas like customer care or

you know back office processes

but also to growth things you know if you think about

radically shortening the time of drug discovery

and what that actually means for longevity

and and and life and that's topline growth.

So so folks are excited

and and they're they're

but at the same time

from the the conversations that I have with with

you know, they'll often say, "Hey Bob,

so do I listen to my CFO or my CIO right now?"

My CFO is in my ear that

we're spending a lot of money on technology,

but we're not yet seeing

enterprise level value from this.

And so, do we really need to be

at the cutting edge or why can't we be a fast follower?

Let other folks figure out where this is and then we'll adopt quickly because

it's a lot more efficient to be a follower than a than a leader.

CIO is saying, "Are you crazy?

This is one of those moments and if we're not in the lead, we're

going to get disrupted."

You know, we spent a lot of time looking at

at least what we think the answer is here.

And and it's interesting.

I know we spent a lot of time talking about technology,

but what we're finding is

half, if not more

of the secret sauce

is organizational change as opposed to technology implementation.

This is for large large enterprise.

And you know, it's things like,

well, what does your look like after you're implementing data?

Could you have, for example, a much flatter

organization that cuts out a lot of middle layers and makes your organization faster?

When you think about really complicated

workflows, think about a a mortgage process.

You got all these steps, you know,

credit scoring, collection, after service, etc.

Those are all departments

in a in a bank.

Well, why do you have four or five departments in a process

if you can really enable this through AI?

Can't you break those walls down?

And so we're spending a lot of time thinking through

not only what's the strategy and how do you implement,

but how do you change the organization?

How do you rewire the organization

to realize the value and and if you can get that right, all of a

sudden the CFO and the CIO are actually on the same page.

But we're finding that's harder and it's taking longer than people thought.

And so I do think we're going to be in this period where

really enterprise fundamentally changing themselves. Yes, enormous potential.

It's going to take a little while to get there.

So then you kind of say, okay, what does that what does that mean for McKenzie?

Which is I think where you you started the question, Audi.

And it means a couple things for us.

One, um, you know, we

we're applying this to ourselves,

and you know, I often get asked,

how big is Mackenzie?

How many how many people do you do you employ?

And um I I now update this almost every month, but my latest answer

to you would be

60,000, but it's 40,000

humans and 20,000 agents.

And a little over a year and a half ago, that was 3,000 agents.

And and I originally

thought it was going to take us to 2030

to get to one agent per human.

I think we're going to be there in 18 months.

and we'll have every

employee enabled by at least one or more agents.

And we're going to have a workforce

that is human and agentic.

And how do we how do we kind of navigate that?

That's kind of one piece of of

what are the assets and and

technologies that we're building in ourselves.

The other big piece is how does it change our model?

We're coming around to the conviction that

we're migrating pretty quickly away from

let's call it pure advisory

work which was a lot of the origins of of our firm and kind

of a fee for service model etc.

And what's it moving to?

It's moving to much more of an outcomesbased

model where we say look let's

identify a joint business case together

and we will underwrite the outcomes of that of that business case

and and it aligns our interests with our clients a lot more

and I think will be the way of the future.

Now, I mean, AI is is going to get better, right?

We're still in the early

early phases of generative AI.

You know, if if technology

can continue to commoditize,

you know, even the kinds of analysis and insight that, you know, a McKenzie

has long provided, you know, what what will clients actually be pay be paying

for when they can probably do a lot of that

>> The kind of problems that we have tackled with our clients over a hundred

years has not been static.

it has changed radically

and uh even you know I'm now considered a dinosaur

in our firm because I'm a little over 30 years with us

but the stuff that I did when I joined as an associate

32 years we wouldn't consider even doing right now why

because clients do that stuff themselves

and we are solving

much more complicated interconnected

questions with our clients

And I think what this is going to then mean is this is just

going to be that next evolution

of there'll be a whole bunch of things that a couple years ago we

did for our clients that our clients will do for themselves.

And the imperative will then be to move to the even more complicated questions.

And to your point, what are what are clients going to pay us for?

They're going to pay us to find ways to double their market cap.

and and until we get to CEOs who say, "I don't want to double my market cap."

I think there'll always be a more complicated

set of questions and opportunities out there.

>> What is the evolving

skills profile then of a of a management consultant?

You know, what are you

and do you even know yet?

I mean, what what are you looking for in new hires?

And that must be evolving pretty quickly.

>> I might frame it in

what are some things we're confident about now

and then what are some things we're exploring.

When I came into this role and it was a little over four years

ago, I asked our talent attraction

team, "How we doing on attracting talent?"

And and I got a we're doing great, Bob. We're doing great. I said, "Why?"

And said, "Well, you know, we we get over a million applications

a year and we we hire anywhere between 8 and 10,000 people and and

even the million aren't a normal distribution, right?

It's there's some of the brightest minds in the world that are applying.

So effectively, what's the problem?

Why are you asking me?

You know, let me let me go back and do my job."

And and I kind of kept asking the question, but

well, how many profiles

are we are we really looking for?

What what are we systematically screening out?

And and it turned out that really when you bo it down worldwide,

there's really only 500

pathways that would lead you to McKenzie.

And that wasn't tying

with what our own organizational

research was saying that the half-life on skills was getting shorter, that people were

too focused on paper ceiling,

did you have the right credentials?

And so we we actually applied analytics

on ourselves and took the last 20 years of data and said

what are the skills and characteristics

that are most likely to make partner in McKenzie

because that's it's not perfect but it's kind of a marker of of success.

You know only one in six

hires make uh make partner.

And it turned out we had some bias in our system.

I'll just give you I mean it was McKenzie so we had like 50

different implications but I'll give you the biggest three.

One was that we were too focused on did you have

perfect marks versus did you have a setback and recover

and the applicant who had a setback and recovered

was more resilient and more likely

to be a higher probability of making partner in McKenzie

and we weren't screening for that.

So we've changed the process to look for

resilience in the in the application process.

It may sound shocking, but we weren't indexing

enough had you had real experience

in a significant way working with others.

Fundamentally, we're about helping our clients change.

And you know, if you've worked if you've done a team sport

or if you've worked in retail,

you know, working your way through college, you've had to engage with others.

and it's built a skill,

a human-touman skill that

um we're now indexing a lot more on.

And and then the last one was um was interesting.

Did you have the aptitude

to learn new stuff

versus had you mastered the subject that you chose to study?

And uh my my youngest guy used this one against me actually when he

was um he was ch middle guy was changing his major for the third

time and I was a little frustrated with him and he's like but dad

you published a paper that said you know if you have the aptitude to

learn new stuff and I'm like yeah but you have to do well

in the subject that you go to

send send his resume to me.

>> It's the only time

>> it's the only time he quoted me.

I was like really?

But um but it did get us to then change our assessment techniques where

we purposely create an environment

where you will no human in the world will have any pattern recognition in

this environment and we figure out how well do you do in an environment

where you have no pattern recognition.

You just have to go figure things out.

So those are some of the skills now

we know we're moving to.

We've launched more of an exploratory

look now going forward where you say,

"Okay, but if everyone gets super human

with these AI tools, what do you want to add on top of this

resilience, teamwork, ability to learn new stuff?"

That part I just told you I feel pretty solid about.

This part I'm going to tell you

is is places we're more in exploration

mode and just be be honest with you.

Uh and one of them is um well, what do the models not do well? Right?

What do the models not do well?

one, they don't aspire.

They're not good at setting the right aspiration level.

And so when you think about what great leaders

do is they help an organization

set the right as what should we aspire to?

And so how do we start to look for

and develop the skills of leadership?

Leadership is going to be durable in a postAI

world because one of the great things leaders do is they help set an

aspiration and get people to stretch.

So we're we're kind of focusing on that.

The second is judgment.

And you've seen time and time again the these models don't there's there's not

truth in the model.

There's not judgment in the model.

Humans need to impose those parameters.

So how do you build judgment and how do you build that capability?

And then maybe the the last one we're we're we're spending a lot of

time on is um

the models are inference models.

They're great at a linear approach to problem solving,

which is kind of what we've been teaching for the last hundred years.

What they're not great is

discontinuous leaps, truly novel thinking.

And so we're starting to figure out where

are backgrounds that are going to be more creative

to come up with things

that aren't about the next logical step, but are about a discontinuity.

And so we're going back to liberal arts degrees and kind of saying, hey,

you know, let's come back to some of the things that might have been

dep prioritized in the past

to see if we can get a little bit more creativity.

We've sort of looked looked back, we've looked forward, you've talked about the some

of the celebratory stuff that's going on.

I need to ask though, you you've also had, you know, your share of

un unwelcome publicity in recent years.

And I'm talking about Oxycontton,

bribery, bribery charges in South Africa, conflict of interest accusations

uh in the US and elsewhere.

How do you account for all of that?

How do you look at what happened and and why?

Well, I'm glad you asked and you know this has been

I think it's been a real soularching

for us starting about

four or five years ago

of um really two questions.

On the one hand,

where should we be more humble

and and learn from our mistakes

and at the same time

where should we be c more courageous

and just say look

we disagree with you and

we're even though we'll face criticism

we're going to push back because that's what we believe in.

And and let me kind of parse each of those.

you know, look that some of the ones that you mentioned

fall clearly in the in the humble camp.

And I think some of the great learnings that we had if I just

take take two in particular

the work with opioids

and our partnerships in South Africa

you know what we learned is

that we have to have a higher diligence

around client selection and

we put in place a framework

that is a really robust

assessment now that looks across every aspect from

the country, the topic, the institution,

the individuals, and the operating environment

to say, is this a client that we actually want to bring in to the firm?

And and so one of the languages that I've used with our partners, and

you know, it's hard to drive change in a partnership

is um you all grew up with the idea that one of the privileges

of a partner is to commit the firm.

And I'm not saying that's not the case anymore,

but you don't do it alone.

You do it with risk professionals.

and and we invested about a billion dollars.

I brought in the head of um

internal audit from Apple, the head of compliance from Walmart

to basically kind of modernize

us around these processes.

And it's why I also said, look, we apologize.

We got those wrong.

And but we don't want to set out just to remediate the problem.

We want to set out to try

and set the standard for professionalism for our industry.

And so I think that is an important lesson of

How do you learn from your mistakes?

Stay humble, but not seek to just repair them, but seek to actually make make yourself better.

And we've had a lot of learnings around that.

Mackenzie has learned a ton from this, and we're setting out to make ourselves better.

And and one of the things that I've tried to open myself up to both

to regulators and to clients is look, these are the new protocols we put in place.

Do you have any ideas on how we can make them better?

Because even what we've put in place, I'm not sure we're ever going to

be done on this front.

So, I just wanted to close the loop on that.

Like, I'm obsessed with

we got to be a journey to try and aspire to set the standard

for professionalism for our our our

But then, as you say, look, the lifeblood

of what we do and it's why

so many great talent from around the world come is the kind of impact

that they can have with clients.

I mean, from the outside,

you know, it looked like McKenzie was committed to growing as quickly as possible

in markets all over the world,

you know, with with by design relatively little centralized oversight.

And again, from the outside,

that sounds like a a recipe for trouble.

Is that is that a fair analysis?

>> Uh, no, not really.

It's easy to kind of say that are you from the outside, but the

truth of the matter is you have

three or four forces that are going on

you know, on the one hand, there's a

an on the side of um of media, governments

for for all institutions.

And um and so one of the things that,

you know, that we learned through this process is

there are some things that we're going to be criticized for that

that we're just going to push back on.

We got heavily criticized

for our work in hard to abate sectors

on their transition issues

and it was you know Mackenzie's

accelerating climate degradation etc.

And we pushed back and said no look if you're going to be committed

to climate transition you have to work with the hardest to abate sectors.

It's just naive to

say that you're going to solve this problem without that.

And so there's a portion of this that was rooted in

just more transparency, more criticism.

and I'm trying to build a bit of thicker skin.

There's a portion which was an evolution

in our organization model that said

look as as we do get bigger

and as the world gets more complicated

and more requirements are thrown in,

we do need tighter compliance standards.

And um this is where

the idea that we should have the same

compliance and accountability standards as a publicly traded company

even though we're not publicly traded

was I think one of the greatest

changes that we've been through in the last six years.

And growth has never been our objective function.

Um we're privately traded.

We don't have quarterly earnings.

You don't see McKenzie

talking about oh we had revenue growth of this or that

because the ethos internally

is that we're a profession not a business meaning that we want to put

our clients interests ahead of ourselves

and the objective should be are we doing distinctive

work versus you know any kind of work

but without the right controls

you can't guarantee that

and so one of the things I think we learned is even though we

had that as our ethos and the objective function was never grow at all cost.

If you don't put in place compliance,

you're not going to actually be able to enforce those standards.

And and it's painful for a partnership to give up some of that

But I think it's one that we now have pretty immediate.

You you never get 100%

uniformity in a in a partnership.

But I think there's pretty good agreement

that um these things have made us better and it's worth giving up that

autonomy to actually preserve the integrity of the

>> I'll throw one more, you know, sort of critical trope your way, which is,

you know, that people would say consultants

prescribe frameworks but don't have to live with the consequences.

How do you ensure that McKenzie's

advice is more than a PowerPoint strategy?

You know, that it creates

real lasting long-term >> I hope we get out of PowerPoint

entirely at someday, and I say that with love to Microsoft,

but um but it's

it isn't providing a unique insight.

It goes back to this notion of

what we really aspire to be is to be impact partners with our clients

and um we're on a change journey

of moving quite frankly from a model that was advisory

to one that um underwrites

outcomes and and today Audi about

a third of our revenues

total are underwriting outcomes.

So, it's not, hey, you handed me a PowerPoint, great.

It's we collectively signed up for this outcome together,

and we're tied on this journey all the way through until that impact is delivered.

My hope is that that crosses a majority of the revenues by the time

I'm done being the global manager

>> We've been around 100 years, you've been around 100 years, we're all presenting important ideas.

Uh, there are others as well.

And yet, this is hard, right?

Running a business is hard.

Nobody really has has cracked the code forever.

Where do you think leaders

most consistently, you know, get things

>> I think there is

some mix of a couple things that

are, at least in my mind, increasingly important.

You know, one is this um

this hunger and thirst

to acquire new information.

And whenever you get too confident,

too I think change for the negative is going to come.

And and so how do you have this

almost ruthless quest for

let me continue to question new things and and maybe also

from all levels in the organization.

Often the best ideas

are embedded somewhere lowered out.

The second and Audi you kind of linked it when you talked about both

of our organizations is

how much do you do this yourself

versus do you think about

and I think increasingly

we're seeing when people collaborate

across the value chain

etc you you find

disproportionate gain and yet our organizations

aren't geared to collaborate well right we're just not and so

thirst for new a focus on on collaboration

And then finally, I would say, and maybe this is kind of a sign

of the times, maybe not, but um speed matters.

You know, one of the things that we've we've studied to death is

um faster organizations outperform

slower organizations even if they make more mistakes.

And yet, we're not wired to do that.

There's such risk aversion in large enterprise.

If we could lean in a bit more to that, I think great things happen.

So on the issue of management, what

what seems to be fundamentally

different today, you know, versus

how companies have to adapt to,

you know, jolts in geopolitics

or or with technology,

you know, what are you seeing in terms of kind of new management paradigms

that are taking shape today?

>> I kind of look at it from the lens of the discussions that I

have, which is what are CEOs focused on, right?

What are what are some

big topics right now that

that are occupying the minds of senior management teams and

their discussions both amongst themselves and and and

with boards and and as you can imagine

that that varies based on where you sit in the world.

But there are some themes

to your question Audi that seem to be transversal.

I'd be lying if one of the themes wasn't one of the ones that

we talked about, which is how do I get value from this technology,

you know, and and what is everyone else doing because this is hard.

And so I would put that as one of the the themes of how

do I transform my enterprise

through this this revolution

in technology that we're seeing right before our eyes.

The second big theme is

um how do I build more

institutional because I'm increasingly

I'm talking now in the in the guise of a CEO

of the mind that unfortunately

things will never go back to how they were

there's going to be a world of continuous

shocks and so in a world of continuous

shocks do I have enough institutional

resilience in my organization

and when you burrow under that

you know what what folks often say is

I need I like sports I'll give you a sports analogy I I need

to play offense and defense at the same time.

So, I need defense

that I need enough buffer,

cushion to be able to withstand

something that I don't see coming.

But I also can't just play defense.

I need some capacity

to take some bold bets

even when I may be getting hit with exogenous shocks.

Can I play offense and defense at the same time?

is my simple version of

how do you build um institutional resilience?

And then maybe the last one, if I were to just give you three,

is um I haven't met a CEO yet

that thinks that their organization model is perfect. Haven't met one.

And you know, a lot of the

the seinal thinking actually comes from some stuff.

I'm going to date myself here, but I told you I was doing history.

A 1959 paper in HBR

by Gil Cle was a this was before he became a GMP.

He was one of my predecessors,

but it was about

creating a global organization

and it was the precursor

thinking to the matrixed organization.

And if you kind of look at almost every large enterprise

today, there is some version of a matrixed organization.

And I hear different

tension points from CEOs

about why their org

is one of the bottlenecks

in getting done what they need to get done. It's too slow. It's too cumbersome.

I can't resource reallocate.

It doesn't help me with complicated geography decisions.

Whatever it may be, Audi,

I hear a lot of questions about what should my future organization model be?

>> So, in 10 years time, what would you like McKenzie to be known for

that it is not known for today?

I think it's got to be a mix of

what do I hope we're still known for

and then what might be some new things, right?

I because it's not going to be just

stuff that McKenzie isn't known for today.

I I hope the part that it's continued to be known for

is um leadership factory of the world, right?

And and one of the things that's been very exciting is

no matter how long folks stay with us, they tend to do pretty well wherever they go.

and and you know we produce more CEOs than any other institution in the

world and I hope that's still the case in 10 years our are folks

coming to us and

you know sorry this is just my direct language you know maybe the experience

isn't easy and and maybe it's pretty hard and they got a lot of

tough feedback but do we make you a better leader no matter how long

you're in Mckenzie 2 years 30 years but do you leave Mackenzie a better

I hope that remains

I hope the part that

is new to your point is something that's inflight

today but I think not really well known

which is we complete

this journey from being an adviser to an impact partner

and that McKenzie is not known for hey they gave me great advice but

you know if it worked

that was because they were smart and if it didn't work it's because I

didn't implement uh which is the you know the joke right but as it

moved to you know what

we designed a business case together and these guys underwrote the same outcomes that

I took to the board

and we went on this journey and

um we kept at it until we got to someplace I didn't think I could get to.

I think that's the the part that I'd love to

land fully in this next decade.

>> Bob, thank you very much for for being here.

That was a great discussion and congratulations on turning 100. >> Thank you. I enjoyed it.