By Kevin Meyer
We probably aren't making any friends over at McKinsey, not that we really care. From nearly destroying Lego to figuring out that silo organizations aren't optimal – 20 years after everyone else – we've pointed out how they aren't exactly prescient braniacs. Of course we hold most major consultancies in the same high regard, so I hope they don't take our criticism personally.
Now The Economist reveals another tidbit that demonstrates their financial and business acumen:
Critics of management consultants in general, and McKinsey in particular, can find a nice nugget in the New York Times's profile of General Electric:
In the buoyant years before the credit crisis, the company’s finance arm contributed nearly half of G.E.’s overall profits. When Mr. Immelt had qualms about the unit’s risks, he sought outside opinions, including ordering up a study by the consulting firm McKinsey & Company in 2007.
Sixty days later, the consulting team, he says, told G.E. that money from nations with a trade surplus, like China, and sovereign wealth funds, among other investors, would provide enough liquidity in the financial system to fuel lending and leverage for the foreseeable future. (McKinsey declined to comment on the study.)
And a year or two later the financial system fell off a cliff.
Of course basically no one predicted this crisis, although in hindsight many could have. On a cross-country flight last weekend I finally got a chance to read Michael Lewis' The Big Short which tells the story of six people that did predict the crisis, bet against prevailing wisdom and the multitudes of supposedly smart financial analysts and their products, and made a killing. "Killing" being the understatement of the decade. Very interesting personalities, backgrounds, and perspectives that allowed them to see what others ignored.
I wonder how much GE paid McKinsey for that amazing analysis and foresight. Nevermind, I don't want to know.