We wondered this morning just how much Conde Nast was getting bilked by McKinsey to tell them who to fire. We heard from one very informed type that it depends, obviously, on the scope of the project, though they can bill up to $2 million a month if you let them. (NEAT GIG.) More typical would be billing in the range of $400K-$750K a month, and a typical engagement could last between three and six months. (The person notes also that companies seem to become often quite entangled/enmeshed with McKinsey, and the relationship can stretch on and on.) Also, they'd never heard of a commission-type arrangement, which was suggested by a commenter here, where they get paid for dollars saved; instead all the billing is, essentially, by the hour. Do you know more? Enlighten us!
I know that my friend did temp work at McKinsey and was (verbally) sexually harassed by her boss (among his favorites was to constantly ask her if she wore bathing suits, and if so, what they looked like). When the temp job ended, they gave my friend a lovely little going-away gift bag -- filled with thousands of dollars in cash and a new iPod. No one mentioned why they were so generous. Aaand the boss still works there of course.
Here is a good read by two former Chicago Trib editors about what these firms actually do. Yes, McKinsey is covered thoroughly.
The bit about commissions based on savings sounds way off (though honestly with the economy being what it is there are all sorts of strange pricing agreements being dreamed up, so who knows), but your source is absolutely right about cross-selling and the potential for long-term "entanglement" with McK. What happens is this: A firm is engaged for a project, and during the course of the work identifies potential for new business, which is then pitched. So if, for instance, a firm consults on a merger they then may make a pitch to work on management/process integration once the merger goes through. It's very standard operating procedure for professional services firms and while it may feel self-serving it's really nothing to clutch your pearls over.
Agree 100% and slightly aroused. (Business is a secret turn-on.) Generally when you hear that McKinsey (or similar) has been brought into a situation, you can be sure that upper management is bloated and out-of-touch with the runnings of their company.
I now have this hilarious mental image of you getting all kinked out as someone whispers beauty contest and rainmaker in your ear.
And yes, corporate bloating & out-of-touchedness is a real problem, and it usually manifests itself in bloating on down the totem pole (and not just staff bloating but bloated processes as well). It's natural and understandable for people to look at management consultants as mere axe wielders, but in many cases the reality is that unless companies get serious about streamlining and the resulting cost-savings they would collapse completely. So what's better, losing some jobs or all of them? (That's a touch simplistic, I know, but sometimes basic points are worth making.)
Bloated and out of touch, or just in the middle of a delicate political situation where they want some cover for a decision that they've already made. They bring in a consultant and, la, three months later the consultant comes out with a plan that management or some factions within management had wanted all along.
I've evaluated and hired consulting firms for different projects. Payment = expenses related to project such as travel and accommodations, printing costs, etc. up to a capped amount + an agreed upon rate that is related to milestones in the project, not months on the project (better for both; faster the consultants turn around work product, quicker they can move on to another revenue source which works well for the client seeking rapid turn around for the info, as well). A typical engagement for a large fortune 100 company like this would be in the ballpark range of $1 mil or more, but it really depends on the scope of their assignment. I once participated in the negotiation for a very limited (in scope/size) consulting engagement and it was in the $75K - $100K range, but it was definitely not your typical assignment and it was with one of the much smaller firms that nobody has ever really heard of.
McKinsey most likely works on a retainer system not unlike some law firms or executive search/recruiting firms (I don't know for sure on McK, but know several of their competitors work this way). You would arrange for them to work on X project, and pay them Y dollars in Z number of installments. In the consulting firm where I used to work, you paid your 3 retainers over 90 days, so the motivation on our side was to get the work done quickly, because after 90 days you were essentially working for "free."
And, much like your source mentions, once you're into a company you can see all other kinds of issues and pitch for more work. If you do that enough times, you may be able to get the company to sign a preferred provider-type contract which would mean they will use your firm in exchange for you not working with their direct competitors. These are like the holy grail of prof services, and procuring a lucrative one will get you promoted to partner in no time.
As for the cash, I would assume McKinsey doesn't do much of anything for less than a 200k or so retainer. It was a slightly different kind of prof svcs business, but our minimum retainer was 90k, and McK is THE marquee name in that prof services world, so I'm guessing theirs would be much, much higher, especially as their projects have a greater scope than ours ever would. For a job at a big company like this, you could easily be looking at a retainer north of the 500k a month mark, and if it's a really big job, meaning lots of McKinseyites involved, it could easily be more.
Each unique project usually requires Board of Director approval which requires a competitive bid process so there is no such thing as "preferred providers" in the world of corporations and consultants.
I was a consultant. We had preferred provider agreements. They were pretty easy for the client to get out of, though, especially for a big project that would require BoD approval. So they pertained mostly to smaller projects, I suppose, but they were there!
Goldman guys go to government. McKinsey guys go to run the companies they have worked with. Enron was run into the ground by one such man (Skilling). McKinsey alums are everywhere in industry and have destroyed their fair share of good firms. I'm sure they've done some good, but we never hear about that because it's boring, and who wants to be boring.