McKinsey plans thousands of job cuts in slowdown for consulting industry

As McKinsey & Company partners gathered in the consulting giant’s birthplace in late October, Mr Bob Sternfels delivered a rallying cry. “We will kick some ass as we start our second century,” the firm’s top executive told the thousands of attendees.

But away from the 100-year festivities in Chicago, McKinsey bosses have been conveying a more pragmatic message: It is time to get leaner.

The firm’s leadership has discussed with managers in non-client-facing departments the need to cut about 10 per cent of headcount across their business, according to people with knowledge of the matter.

This could amount to a few thousand job cuts that McKinsey would stagger over the next 18 to 24 months, the people said, asking not to be identified because the details are private.

For McKinsey, the go-to adviser for companies and countries, it is the type of cost-cutting approach that its consultants often prescribe to clients. The firm’s revenue growth has flatlined in the last five years, leading to a reset after rapid hiring over the prior decade.

“As our firm marks its 100th year, we’re operating in a moment shaped by rapid advances in artificial intelligence (AI) that are transforming business and society,” a McKinsey spokesperson said. “Just as we’re partnering with clients to strengthen their organisations, we’re on our own journey to improve the effectiveness and efficiency of our support functions.”

It is early to gauge the net impact on headcount, the spokesman said. From 2012 to 2022, the firm’s employee count climbed from 17,000 to as high as 45,000. Since then, it has slid to around 40,000.

Firmwide revenue has hovered around US$15 billion ($19.3 billion) to US$16 billion in the last five years, though Mr Sternfels told partners that the company is seeing improving growth.

The company still plans to hire more consultants as it cuts back on support functions, the people said.

McKinsey has not designated a code name for the plan this time round. Its push to axe about 1,400 jobs in 2023 under the internal label Project Magnolia had unnerved many of its staff, one of the people said.

Challenging period

It is an inflection point for the flag bearer of the consulting industry, whose roots go back to University of Chicago accounting professor James McKinsey. He started the company in 1926, doling out advice to a local meat packer. The firm has since racked up an enviable roster of clients, from blue-chip companies like Coca-Cola and Goldman Sachs Group to governments that span the globe.

This vast network of influence was on full display at the annual partner confab in October that doubled as a kick-off to McKinsey’s centennial celebration. Rio Tinto chairman Dominic Barton, Visa chief Ryan McInerney and former US secretary of state Condoleezza Rice were in attendance, according to people with knowledge of the event. Home-town talk-show legend Oprah Winfrey added surprise star power.

Mr Sternfels took centre stage and told his peers that the firm is finally ready to escape years of lacklustre growth.

“I’d like to ask you, are you excited about our mission? Do you feel we have a good shot?” he exhorted to the crowd, before telling them the good times are on their way for those who say yes.

Mr Sternfels is in the middle of his second three-year term as McKinsey’s global managing partner, the de facto leader.

Even with its outsized influence, McKinsey is navigating a challenging period for the industry as clients turn more cost-conscious, forcing the company to contend with a slowdown in demand for its traditional services.

McKinsey, EY and PwC have been cutting jobs over the past few years to weather the slump. In November, McKinsey cut about 200 global tech jobs as it joins rivals in using AI to automate some positions.

In recent months, Accenture has cautioned that US President Donald Trump’s push to cut government spending on consulting will hinder its growth. Other markets are bringing their own headwinds. In China, Beijing has discouraged the use of the international consulting market in favour of its own home-grown firms.

McKinsey has also been hampered by moves in Saudi Arabia, where the government is paring its payments to consulting firms for various projects across the kingdom.

In the 10 years up to 2024, McKinsey was earning at least US$500 million in fees annually from the country, one person familiar with the matter said, making it one of the company’s biggest clients.

Mr Sternfels, however, has belted out a more optimistic tone, reiterating the message that the firm is ready to move past setbacks and a suite of bruising scandals that dented its image.

McKinsey has had to confront backlash in the US over its engagement with China and Saudi Arabia, and is still reeling from its past engagements with some of the world’s biggest opioid makers. The firm had to pay out hundreds of millions of dollars in civil penalties and legal settlements to resolve allegations that it helped fuel the deadly US drug epidemic.

“I feel we’ve collectively righted our ship,” Mr Sternfels told his fellow partners in Chicago. BLOOMBERG