Consulting Firms – Sometimes a Difficult Position for Procurement

McKinsey is arguably the most impressive, influential and successful consulting firm in the world. (Declaration of interest; I passed all their tests some 25 years ago then they turned me down at final interview, for reasons I now feel were totally understandable. I will tell the full story one day). Yet an article in the Times last week about the firm made me think about how procurement is sometimes put in an almost impossible position.

It was a very good article, behind the paywall unfortunately, and part of a series covering firms that have powerful business networks. Other firms covered included PWC, Goldman Sachs and my old alma mater, Mars.  The piece talked about the influence McKinsey has, and how its alumni have moved into so many top jobs. More Fortune 500 CEOs are alumni of McKinsey than any other company, for instance.

Indeed, more than probably any other firm, McKinsey has cultivated the whole idea of the alumni network very successfully.  Mars, on the other hand,  though up with McKinsey as one of the very best firms in the world, has bred many people who have done well elsewhere but has never had a really strong alumni philosophy. Indeed, Mars people tend to be so inherently competitive, it sometimes seems like we are less likely to help each other in post-Mars life than we would help strangers!

But McKinsey folk do go in for this networking and supporting approach. And a high proportion of their staff leave the firm relatively young and go on into senior positions in business, partly because of the “up or out” policy and partly because they get offered such great jobs. As the McKinsey network spreads its tentacles, there are some issues for procurement.

Why is that? Well, the basic and underpinning tenets of procurement include the importance of competition, the need to find new and better suppliers, fairness and transparency in supplier selection processes … you can add your own points.

But that is not how McKinsey tends to work. An ex-McKinsey consultant, now a CEO, CFO, or Chair of a large organisation simply wants to bring in their old firm to help solve problems. Now we are not doubting that McKinsey may well be as good as anyone at doing so, and the person commissioning the work probably genuinely believes the firm are the best solution – it is not as if they are gaining anything personally.

Nonetheless, there is a conflict of interest here. Often there is a desire (by both parties) to avoid competitive processes, because McKinsey are  a. expensive and b. not very good at the whole cost transparency thing (or they certainly weren’t when I dealt with them – trying to establish “day rates” for consultants was well-nigh impossible). So this assignment will cost a million – you don’t really need to know how many days’ work you get for that, or what the day rate is, do you? Now to be fair, that is in part because McKinsey worked to outputs and deliverables, but again in my experience these could be vague, in which case a statement that says “The cost is £30,00 a month” with no other supporting evidence was not really good enough.

Now the firm may have changed – I’d be interested to hear whether this is still the case in 2017. But that is not my main point anyway. It is that all the big consulting firms look to build strong and personal relationships with senior clients, in part because that is the right thing to do for better results for both parties, and in part because it can make it easier to win work. That includes by being able to bypass the procurement function and process, who might introduce unpleasant aspects such as competitive bidding.

So if you are a CPO or senior category management, what do you do when a very senior executive who is ex-McKinsey, says “I am bringing in McKinsey to do this piece of work”?

Do you just concentrate on putting a half-way decent contract in place with McKinsey, but accepting what has been agreed already?  Do you try and negotiate further to some extent? Do you insist that the executive defines the work properly and that a competitive process of some sort is run?

We’re not going to propose to answer that conundrum today. But keep in mind that these alumni networks (not just McKinsey’s, we should say) are designed to benefit the firm, so at least be aware of the potential conflicts of interest that exist in every organisation.

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