Category Archives: Business

When McKinsey Comes to Town

OMG!! Fascinating and terrifying at the same time. Highly recommend! Most intriguing business book I have read in 2023.

Walt Bogdanich does an amazing job peering under the hood at the inner workings of McKinsey in his book, When McKinsey Comes to Town: The Hidden Influence of the World’s Most Powerful Consulting Firm which is a huge nod to his phenomenal investigative journalism skills since McKinsey and their employees and ex-employees typically keep company and client information confidential.

Bogdanich shares many stories of McKinsey’s work and influence on various companies, countries, industries, and government agencies. Many McKinsey alums are/were in senior leadership positions in government (Senator Tom Cotton, Senator Trent Lott, Lael Brainard: Vice Chair of Federal Reserve, Pete Buttigieg: US Secretary of Transportation), banking (Tidjane Thiam: CEO of Credit Suisse, Ian Narev: CEO Commonwealth Bank Group, Philip Purcell: CEO Morgan Stanley, Peter Wuffli: CEO UBS Asset, Peter Orszag: CEO Lazard), and business (Sundar Pichai: CEO Google, James McNerney: CEO Boeing, Sheryl Sandberg: COO Facebook, Jonathan Schwartz: CEO Sun Microsystems, Jeff Skilling: CEO Enron, Tad Smith: CEO Sotheby’s, Helmut Panke: CEO BMW, Fred Malek: President Marriott Hotels, Hubert Joly: CEO Best Buy).

Bogdanich shares stories where McKinsey advised Disney to reduce costs related to ride maintenance and safety and suggested that all ride maintenance employees be moved to a night shift. Founder Walt Disney focused on ride safety and maintenance. Once Michael Eisner was the CEO, McKinsey was brought in to evaluate how to reduce costs and increase profits. Unfortunately, a roller coaster that was making unusual noises killed and injured park guests when wheel axles broke.

In the 1950’s, McKinsey was asked to conduct an executive compensation study. Their study indicated that hourly worker’s wages were increasing faster than executive wages. At the time, executives earned approximately 20x what front-line employees earned. Now that ratio is 350x. Many firms hire McKinsey to research executive compensation packages to ensure they are competitive. According to the book, it has been a race to the top to ensure executives continue to receive large compensation packages.

McKinsey created “matrix management” where employees reported to a myriad of bosses and accountability and responsibility levels were pushed lower in the organization. Banks, in particular, began allowing junior employees to issue and approve large loans. McKinsey also introduced the securitization of loans which allowed loans to be kept off balance sheets. This enabled banks to issue more loans and to use special purpose vehicles. We all know what happened to shaky mortgage loans.

Business author, Tom Peters, describes McKinsey’s matrix management model as similar to playing tennis, soccer, and basketball on the same court at the same time with the same players. Bogdanich indicated that savvier companies stayed away from McKinsey fads.

Allstate hired McKinsey to help them reduce costs and increase profits. A college student was rear-ended in a car accident and McKinsey refused to pay his claim. The student ended up hiring a lawyer and the case dragged on for over seven years. The court ordered Allstate to provide the McKinsey powerpoint and Allstate refused. The fine was $25,000 per day. Allstate’s fine rose to over $7 million dollars because they refused to provide the McKinsey powerpoint slides. Eventually a state prosecutor threatened to pull Allstate’s Florida license so that they couldn’t do any business in Florida. Allstate eventually provided the slides which showed the details on how claim agents were to slow-walk, deny, or lowball claims. In the meantime, State Farm and many other insurance companies had already hired McKinsey to help their companies reduce costs with the same model Allstate had implemented.

Bogdanich describes this as reverse Robinhood. The cost savings and increased profits put money in the executives’ coffers as well as McKinsey’s coffers…..all at the expense of policyholders. It was like declaring war on insurance policyholders. Bogdanich suggested to readers the book, From Good Hands to Boxing Gloves: The Dark Side of Insurance, for additional information about Allstate.

Additional stories are told about McKinsey’s involvement with country governments, like Russia, China, Malaysia, and Saudi Arabia. Other business stories include US Steel, Enron, and other well known companies. After the movie, Moneyball, McKinsey got involved in sports analytics and was advising the Houston Astros during the season they were cheating.

McKinsey develops systemized processes and then sells those processes to many companies within the same industry, regardless of conflict of interest. These systemized processes then metastasize within an industry. The end result is often a larger chasm between the haves and the have-nots. McKinsey is typically not held liable because they provide advice, they don’t implement the processes.

Insightful and scary look at the level of influence McKinsey has played in the US, other countries, and many companies.


That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea

That Will Never Work bookBuckle up for the ride!! Marc Randolph, founder of Netflix, takes readers on the wild roller coaster ride of startups. It took Netflix only four years from initial launch to going public. I recently worked at a tech startup that went public within four years and it is a crazy, heart thumping, tightrope-walking journey. This book reads like a corporate thriller with heart stopping twists and challenges.

When Netflix initially launched in April 1998, after twelve months of incredibly hard work, their servers kept crashing as customers were going to their site. Cloud server companies didn’t exist at the time. Netflix employees kept running to Fry’s, an electronics store, to continually buy new desktops with only 64 megs of RAM each.

In 1998, very few DVD players existed so Netflix partnered with Sony and Toshiba to include promotional information about Netflix in each DVD player package. Initially Netflix offered the purchase and rental of DVDs. 90% of their revenue was coming from the purchase of DVDs rather than renting DVDs. Netflix tried many promotional gimmicks to try to interest customers in renting DVDs, but customer acquisition costs exceeded revenue. The breakthrough came with a subscription service.

A large part of the book is about creating company culture with a startup and Netflix’s company culture is legendary. Randolph credits Patty McCord, the first HR leader at Netflix, with being instrumental in creating their company culture as well as redefining the entire field of Human Resources. After the bubble burst, Netflix had to lay off 40% of their workforce to remain a viable company. The layoffs were handled humanely, in-person, and with compassion. Below is a link to the Netflix culture.

Netflix Culture:

Other hairpin turns throughout the book include conversations with Amazon and Blockbuster about whether they were interested in acquiring Netflix during the early years. Both companies were not interested at all. At the time of the conversation with Blockbuster, Netflix was doing $5 million in revenue and Blockbuster was close to $6 billion. We all know how that story unfolded.

Randolph credits his optimism and persistence throughout his life on not taking “No” as the final answer. There are many examples of this in his book but the best example is when he was turned down for a job very early in his career and he asked everyone in the interview process for feedback on how he could improve. He ended up getting the job.

There are many, many leadership and life lessons throughout this fabulous book, including the Randolph Rules that his father created and Marc kept near his mirror and read every morning. He has passed these down to his three children.

Highly, highly recommend That Will Never Work, particularly for those working or interested in startups, as well as those who love reading books that combine business, leadership lessons, and memoir.