“We Want to Make Ourselves Better”

Since becoming McKinsey & Company’s global managing partner in 2021, Bob Sternfels has had to navigate a series of thorny challenges. He has taken steps to restore the consulting firm’s reputation after several scandals, most notably its role in the U.S. opioid crisis. He’s trying to tighten the rules on client selection and governance without alienating the firm’s partners. And to set McKinsey up for the AI era, he and his partners are driving an organizational transformation to focus less on traditional consulting services and more on delivering outcomes. Sternfels, who joined McKinsey as an associate 32 years ago, spoke with HBR editor at large Adi Ignatius about how these challenges are reshaping McKinsey as it celebrates its centennial. Here are edited excerpts from that conversation. HBR: Welcome to the century club! As you look back on McKinsey’s 100 years in business, how would you sum up its legacy? Sternfels: This is an important milestone—the half-life of companies is getting shorter as the rate of technological change quickens. It’s a chance to look at our history to see how we got here and, with the world changing faster than any of us had anticipated, to determine what it is we want to preserve and how we need to adapt. To what extent has McKinsey created the ideas that have shaped business, and to what extent has it identified and suggested best practices from elsewhere? If I had to guess, I’d say half of what we’ve done involves truly novel creation. We invest more than a billion dollars a year in innovation: in proprietary IP, in new thoughts, in new ideas. But to really answer the question, you have to think about how we do our work. We co-create with our clients, and we’re at our best when we figure out how we can help clients get to places that they can’t get to themselves. One area of innovation is AI. How are you talking to clients about AI? We haven’t talked about AI at all [laughing]. You should! It’s really cool. Can you educate me on it?…I’m kidding. There is enormous belief among our clients in AI’s potential—from productivity gains in customer care to improved back-office processes to achieving growth. But CEOs often ask me whether they should listen to their CFO or their CIO. The CFO says they’re spending a lot on technology but not seeing enterprise-level value: “Do we need to be at the cutting edge? Or can we be a fast follower?” The CIO is saying, “Are you crazy? This is one of those moments when if we’re not in the lead, we’re going to get disrupted.” That about sums it up. What do you tell them? We spend a lot of time talking about the technology, but what we’re finding is that half, if not more, of the secret sauce is in organizational change. What does work look like after you’ve implemented changes with AI? How do you redesign things? Could you have a much flatter organization that cuts out middle layers and makes your company faster? And if you sort all of that out, then all of a sudden the CFO and the CIO are on the same page. But it’s taking longer than people had thought. What are the internal discussions at McKinsey on AI? How is AI shifting the economics of your industry, in terms of headcount, pricing, productivity, profit margins? When people ask me how many people McKinsey employs, my answer is 60,000: 40,000 humans and 20,000 agents. A year and a half ago we had the same number of humans but just 3,000 agents. In another 18 months I think every employee will be enabled by one or more agents. We’ll have a workforce that is human and agentic, and we’re going to have to navigate that. How does that change our model? We’re coming around to the conviction that we’re migrating away from pure advisory work, away from the fee-for-service model. We’re moving to more of an outcomes-based model, where we identify a joint business case with our clients, and we underwrite the outcome by tying our fees to the impact our work delivers for them. This aligns our interests with those of our clients a lot more. I think that’s the way of the future, particularly as we tackle ever more complicated questions about technology and enterprise change. AI is just going to get better. If technology can commoditize the kind of analysis and insight that McKinsey has long provided, what will clients be paying for when they can do a lot of this themselves? It’s a great question. The kinds of problems we’ve tackled with our clients have changed radically over time. We wouldn’t consider doing some of the stuff I did as an associate 32 years ago. Why? Because clients can do that work themselves. We now solve much more complicated, interconnected questions. This is the next evolution. What will clients pay us for? They’re going to pay us to find ways to double their market cap. So until we get to where CEOs say, “I don’t want to double my market cap,” there will always be a more complicated set of questions and opportunities out there for us to take on. Given those changes, what is the evolving skills profile of a management consultant? What are you looking for in new hires? We get a million applications a year, from some of the brightest minds in the world. But with the half-life of skills getting shorter, we have to ask if we’re hiring for the right credentials. To answer that, we’ve been applying analytics to ourselves to determine the skills and characteristics that, over the past 20 years, have been most likely to lead to someone making partner. It turns that out we’ve had some bias in our system. Singapore Press/AP Images We’ve been too focused on whether one has perfect marks instead of whether one is resilient. An applicant who has experienced a setback and recovered has a higher probability of making partner. So we’ve changed the process to look for resilience. We also weren’t indexing enough on how one works with others. We’re prioritizing that a lot more. And we’re looking at whether applicants have the aptitude to learn new stuff versus whether they have mastered the subjects they chose to study. My son used this against me when he was changing his major for the third time. He saw my frustration and said, “But Dad, you published a paper that said one has to have the aptitude to learn new stuff.” That kid is smart. Send me his résumé. It’s the only time he’s ever quoted me. But we’re dramatically changing our assessment techniques. For example, when we test applicants we create an environment where pattern recognition isn’t possible; they just have to figure things out. As AI becomes a bigger part of your business, what are the human skills McKinsey associates will need in order to succeed? We’re still exploring this, but one thing AI models don’t do well is aspire; they’re not good at setting the right level of aspiration. Great leaders set an aspiration and then get people to stretch. So we’re focusing on how to promote that skill. A second thing is judgment. There isn’t truth in AI models; there isn’t judgment. Humans need to impose those parameters. So how do you build up that capability? And lastly, how do you get to truly novel thinking? AI models are great at a linear approach to problem-solving but not at making discontinuous leaps. We’re starting to figure out which backgrounds tend to produce the most-creative solutions, beyond just the next logical step. We’re looking more at liberal arts majors, whom we had deprioritized, as potential sources of creativity. We ran a piece by the chief information officer of Goldman Sachs; he had wanted his child to focus on coding but then, with the rise of AI, figured she should also study philosophy. Exactly. McKinsey has had its share of unwelcome publicity in recent years, with its involvement in the OxyContin epidemic, with bribery charges in South Africa, and with conflict-of-interest accusations in the United States and elsewhere. How do you account for all of this? What happened, and why? There has been a lot of soul-searching at McKinsey around two questions: Where do we need to be more humble? And how do we learn from our mistakes? With our work on opioids and our partnerships in South Africa, we have apologized. We got those wrong. We’ve learned that we need greater diligence around client selection. But we don’t want to just remediate the problems. We want to set the standard for professionalism in our industry. We want to make ourselves better. We brought in the head of internal audit from Apple and the head of compliance from Walmart to help us modernize our processes. From the outside, it looked like McKinsey was committed to growing as quickly as possible in markets all over the world with relatively little centralized oversight—a recipe for trouble. Is that a fair assessment? No, not really. Growth has never been our objective function. The ethos internally is that we’re a profession, not a business. We put our clients’ interests ahead of our own. But without the right controls, we can’t guarantee that we’ll live up to our ideals. As we get bigger and as the world gets more complicated, we need tighter compliance and accountability standards, equal to those of a public company. We’ve learned that even with our ethos, if we don’t put compliance in place, we’re not going to be able to enforce those standards. It’s painful for a partnership to give up some of its autonomy, but I think there’s pretty good agreement that it’s worth giving up that autonomy to preserve the integrity of the enterprise. Let me throw a critical trope your way. People often say that consultants prescribe frameworks but don’t have to live with the consequences. How do you ensure that McKinsey’s advice is more than a PowerPoint strategy—that it creates real, long-term impact? I hope we get out of PowerPoint entirely some day (and I say that with love to Microsoft). But that isn’t how we provide unique value. Our aspiration is to be a partner with our clients. We’re on a change journey, and we’re moving away from an advisory model. Today about a third of our revenue comes from underwriting outcomes. We don’t just hand people a PowerPoint; we sign up to achieve an outcome together, and we’re tied to the journey until we deliver it. My hope is that we earn a majority of our revenue this way by the time I’m done being global managing partner. What are one or two projects that you’re proud of—and that you’re able to talk about? The vast majority of our work is done not for our own edification but to make our clients more successful. The beauty is that we don’t talk about it; they just do well, and we have this unseen impact. While there generally is confidentiality, I can speak about a couple of engagements. One is with Campbell’s, when we helped them move from straightforward succession planning to figuring out the leadership profile and skills that they need and then systematically building out a cohort of about 1,200 leaders across the organization. Another is with BCP, the largest bank in Peru. The goal was to drive financial inclusion, to bring more folks into the formal banking sector in a society where many don’t have access to it. We helped them implement a digital strategy that included designing a digital payment app that has added 16 million Peruvians to the banking system. You speak almost daily to CEOs around the world. What are they most concerned about? One issue is how to get value from technology. How do they transform their enterprise through the technological revolution that’s unfolding before our eyes? Another is how to build institutional resilience. In a world of continuous shocks, does their organization have enough of it? Leaders need to play offense and defense at the same time. They need to have enough cushion to be able to withstand the next blow that they didn’t see coming. And they need some capacity to make bold bets, even when they may be getting hit with exogenous shocks. Lastly, I haven’t met a CEO who thinks their organizational model is perfect. Almost every large enterprise today has some version of a matrix, and CEOs talk about the bottlenecks that prevent them from getting things done. “It’s too slow. It’s too cumbersome. We can’t reallocate resources.” I hear a lot of questions about what the future organizational model should be. HBR and McKinsey have both been around for 100 years, curating important ideas for executives. But no one has really cracked the code on management. Running a business is hard. What is it that leaders most consistently get wrong? One mistake is being overconfident. When you get overconfident, negative things happen. And in their hunger to acquire new information, many leaders miss the fact that the best ideas are often embedded somewhere lower in the organization. Also, companies aren’t good at collaboration. When they are, you see disproportionate gain. Finally, speed matters. Faster organizations outperform slower ones, even if they make more mistakes. And yet we’re not wired to do that; there’s too much risk aversion. In 10 years what would you like McKinsey to be known for that it isn’t known for today? I hope we continue to be known as the leadership factory of the world. We produce more CEOs than any other institution, and I hope that’s still the case in 10 years. Beyond that, I hope we complete the journey from being an adviser to being an impact partner. That’s what I’d love to land fully in the next decade.

“We Want to Make Ourselves Better”

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