McKinsey to cut up to 2,000 jobs in back-office restructuring
McKinsey could cull as many as 2,000 back-office staff as the global consulting firm embarks on one of the largest rounds of cuts in its history. The precise number of job reductions has yet to be determined, but could range from several hundred to a couple thousand, a person directly familiar with the matter said.
McKinsey has recently slowed down hiring of back-office staff, said a second person with knowledge of the matter. Other senior industry executives said they expect many consultancies to make cuts to their back- office operations to control costs.
However, McKinsey stressed that it would “continue to hire client-serving professionals” as demand remained strong. The firm has added 17,000 staff over the past five years and now boasts a global workforce of 45,000, with just over half in “client-facing” roles*.
McKinsey, along with rivals Bain and BCG, last year unveiled one of the biggest rounds of pay rises for new hires in more than two decades, as booming demand for consulting services and a tight labour market forced them to compete for employees.
The company, which took in a record $15bn in revenue in 2021, surpassed that figure in 2022, a person close to McKinsey said, although a precise number has not been released. News of looming cuts at McKinsey comes less than a week after accountancy group KPMG announced it was culling close to 2 per cent of its staff — roughly 700 people — in the US, following a sharp slowdown in its consulting business.
Local McKinsey consultants told they are not target of job cuts
McKinsey’s Australian and New Zealand operation has moved quickly to reassure the firm’s consultants that they are not being targeted by a global review that plans to eliminate about 2000 jobs, or more than 4 per cent of the strategy consulting firm’s 45,000-strong global workforce.
The review will instead focus on cutting roles held by staff working in functions such as information technology, finance, communications and human resources. The plan is typical of a review that McKinsey would carry out for a client wanting to reduce costs and increase the efficiency of back-office functions.
McKinsey’s Australian leadership sent a firm-wide email on Wednesday that said the review was part of a regular examination of the firm’s “operating model”.
The planned staff cuts are another sign of economic troubles in the US and Australia. Last week, big four consulting firm KPMG announced it would cut 2 per cent of its US workforce, or about 700 roles, and a similar proportion of its Australian workforce, or about 200 local roles.
KPMG cited a slowdown in the firm’s management consulting business caused by increasingly cost-conscious clients, but a McKinsey global spokesman said client demand was increasing.
“With demand from our clients expanding, we continue to hire client-serving professionals and invest in our ability to serve clients,” global McKinsey spokesman DJ Carella said in a statement. “In parallel, we are redesigning the way our non-client-serving teams operate for the first time in more than a decade, so that these teams can effectively support and scale with our firm.”
McKinsey’s Australian leadership sent a firm-wide email on Wednesday that said the review was part of a regular examination of the firm’s “operating model” and was focused on non-client-facing roles, as employees working in the functions are known.
Start dates deferred
The Australian Financial Review understands that the firm continues to hire consultants but some of these new starters have had their commencement date deferred to later in the year. McKinsey’s local leadership declined to comment.
The firm’s local arm has hired 90 new consultants so far this year, on par with its highest-ever local intake in 2022. The new hires include 35 undergraduates, along with a mix of Masters of Business Administration graduates and experienced hires.
An unspecified number of the new hires have agreed to stagger their start date between February and May.
McKinsey has about 620 Australian and New Zealand employees, of which about a quarter, or 150, work in non-consulting roles.
An executive recruiter who speaks regularly with potential candidates from McKinsey said the cuts followed a bumper year of hiring and salary increases in 2022.
“There are a lot of proposals about, but a lot of clients are stalling before they buy,” he said.
Local revenue down
McKinsey’s local annual revenue fell 8 per cent in calendar 2021 to $440 million, as a big boost to bonuses paid to partners and staff pushed the local operation into a loss for the year, according to corporate filings for McKinsey Pacific Rim.
Globally, the firm posted a record $US15 billion ($22 billion) in revenue in 2021.
The cost-cutting plan, known internally as Project Magnolia, was first reported by Bloomberg, and is expected to be completed in the coming weeks. Bloomberg reported that one motivation for the move was to preserve partner pay.
Separately, the Financial Times reported that the firm’s legal and compliance teams would not be cut. Those teams were built up after the firm faced scandals over its work for opioid manufacturers and in South Africa.
McKinsey plans to cut 2000 jobs as slowdown bites
New York | McKinsey plans to eliminate about 2000 jobs, one of the consulting giant’s biggest rounds of cuts ever.
The firm known for devising staff-reduction plans for its clients is taking the axe to some of its own, with the move expected to focus on support staff in roles that don’t have direct contact with clients, according to people with knowledge of the matter.
McKinsey has a 45,000-strong workforce.
Under a plan dubbed Project Magnolia, the management team is hoping the move will help preserve the compensation pool for its partners, the people said, asking not to be identified discussing non-public information. The firm, which has seen rapid growth in its headcount during the past decade, is looking to restructure how it organises its support teams to centralise some of the roles.
The plan is expected to be completed in the coming weeks, and the final number of roles to be eliminated from its 45,000 workforce could still change, one of the people said. That headcount is up from 28,000 just five years ago and 17,000 in 2012.
“We are redesigning the way our non-client-serving teams operate for the first time in more than a decade so that these teams can effectively support and scale with our firm,” DJ Carella, a company representative, said in an emailed statement. Mr Carella said the firm is still hiring professionals who deal directly with clients.
The restructuring would hit departments such as human resources, technology and communications, the Financial Times reported, quoting a person familiar with the matter. McKinsey’s legal and compliance teams, which have been beefed up in the wake of scandals such as the firm’s work for opioid manufacturers and links to corruption in South Africa, will not be affected, the newspaper said.
The firm posted a record $US15 billion ($22 billion) in revenue in 2021, and surpassed that figure in 2022, one of the people said.
Companies in industries from finance to technology to retailing are reducing staff amid a slowdown in demand and predictions of a looming recession. Tech giants including Amazon.com and Microsoft have announced plans for deep cuts, and Goldman Sachs, Morgan Stanley and other top banks have been eliminating thousands of positions.
News of the cuts at McKinsey comes less than a week after accountancy group KPMG announced it was culling close to 2 per cent of its staff — roughly 700 people — in the US, following a sharp slowdown in its consulting business. The first of the big four accountancy firms to officially announce redundancies, KPMG had been struggling with the collapse in merger and acquisition activity, which hit its deal advisory business, as well as easing demand for IT and strategic consulting.
McKinsey’s move comes two years after Bob Sternfels took over as global managing partner following a vote by its roughly 650 senior partners to oust his predecessor, Kevin Sneader. The management shift was the culmination of a tumultuous period for the firm, which took flak for its role in advising the makers of the painkiller OxyContin and faced scrutiny of various other business ties.
Mr Sneader now helps run Goldman Sachs’s Asia-Pacific operations.
McKinsey consultants helped popularise the phrase “War for Talent” in the late 1990s, a slogan that’s come back into vogue in recent years as the post-pandemic boom led to a frenzied period of hiring and headcount expansion across industries. With that growth now starting to wane, companies battling to preserve profits are turning to job cuts at a scale not seen in more than a decade.
Bloomberg
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