McKinsey, a leading firm with 45,000 employees, held its first face-to-face meeting of 3,000 partners in Copenhagen last week. The firm’s head gave a positive message about the growth of the consulting market after more than a year of slow expansion. Yet, behind the scenes, the reality is more complex, as the firm is on a drive to downsize its workforce due to a lack of recovery in profits.
At present, McKinsey is in the midst of harsh career evaluations, say insiders. Every consultant in the firm will get their performance rated this month and those perceived as under achievers will be tactfully told to move on.
Traditionally, these mid-year reviews were regarded informally, playing a secondary role to the primary end-of-year assessments in October. The comeback of a formal mid-year rating practice signals a move to expedite the exit of more workers, as informed by insiders.
Two years after the Great Resignation, wherein an aggressive job market coupled with the pandemic effects stirred many to change their employments, the circumstances are utterly different.
In the service sector, employee initiated resignations have plunged to all-time lows, as prominent sectors like tech groups, investment banks and others are going from a recruitment stage to cost cutting strategies. Leaders of consultancy and accounting firms are keen on pushing what they term as “attrition”.
In the past weeks at McKinsey, this has manifested in different ways. Middle management has been given financial motives to leave, such as nine months of pay while they search for another job. Others were just given pink slips, with up to 400 jobs being cut this month in specialised fields like data and software engineering.
Bob Sternfels, McKinsey’s chief global executive, has indicated a plan to stabilise the company by year-end, as per sources familiar with the matter. This suggests an increase in large-scale exits is imminent, as the usual annual exodus of 20% of consultants had fallen to 15% in 2023.
Senior partners at the firm are keen to return to a stable state, as these ‘unwanted salaries’ have been reducing their profit margin. A former senior figure at McKinsey, still with close ties to the company, expressed disappointment at the stagnation of their merit-based system, resulting in high staff retention and, subsequently, financial strain. He questioned why the company was not adhering to the advice they provide to other businesses.
The drop in staff turnover is an issue that professional services firms worldwide are grappling with, intensifying the impact of the post-pandemic advisory work slowdown in digital services and M&A.
The phenomenon of decreased employee departures was reflected in Deloitte’s annual report, which revealed the lowest global staff turnover in a decade. KPMG in the US mentioned “historically low attrition” exacerbating capacity issues when they reduced their audit business’s workforce in March. Bain has also offered redundancy packages and relocation options to some London consultants due to lower attrition rates.
Many consultancy and accountancy firms have resorted to redundancies, intensified performance review dismissals, and initiated voluntary exit schemes – often a blend of all three strategies.
However, there appears to be variations in strategy implementation, some acting promptly and more assertively than others. For instance, the attrition rate at McKinsey’s competitor BCG aligned with their 12-year average last year, as per sources. However, this was brought about by a significant change in policy. Between 2012 and 2020, around half of BCG’s exits were voluntary; by 2023, this figure had fallen to just one-third, with two-thirds of departures being enforced.
Rich Lesser, the global chair of BCG, stated that the company is unwavering in its commitment to promote personal growth, provide ample development opportunities, and maintain an open culture around feedback for its exceptional employees. He further added that the company has relentlessly pursued stability in both promotions and employee turnover rates over a considerable period.
Lesser also recognised the emotional strain caused by transitioning from voluntary to mandatory attrition, stating that the employment landscape for BCG-calibre talent was significantly more buoyant in 2021 and 2022 compared to 2023, making departures particularly unpleasant.
The shrinking number of voluntary exits presents a setback to the common career progression model of “up or out” used by professional service firms. The trend of reduced staff turnover resulting in fewer promotions as signaled by sector-wide data.
Live Data Technologies, a company that monitors the career progression of millions of professionals, noticed a marked decrease in promotions in 2023 than in the previous year within consulting and accounting companies. Data revealed a regression in the number of employees advancing within Bain and BCG to pre-pandemic figures, while promotions within McKinsey dipped to lowest in at least a decade.
Namaan Mian, COO of Management Consulted, which provides consulting firm recruitment guidance to students, highlighted that achieving a promotion has become increasingly challenging. He noted that performance evaluations are getting more stringent, with top performers taking up a larger share of the work. Lower and mid-level performers are spending increased periods without projects, significantly impacting their internal visibility and learning opportunities.
On the brighter side, predictions suggest a stronger growth trajectory for the consulting industry this year. Adam Prager, co-head of Korn Ferry’s recruitment company’s professional services practice, indicated in a recent report that multiple firms stepped into the year 2024 with augmented optimism about meeting revenue goals, acknowledging the extraordinary growth phase of 2020-2022 as anomalies and not the status quo.
Mian mentioned that it might not be until 2025 that employment measures such as recruitment, dismissals and advancements return to the norms seen before the global health crisis. Despite glimpses of normality on the horizon, he cautioned that, “we haven’t fully traversed the challenging path yet.” – Rights reserved, The Financial Times Limited 2024.