McKinsey, founded in 1926 by James O. McKinsey, the Boston Consulting Group, founded in 1963 by Bruce Henderson, and Bain & Company, founded in 1973 by seven BCG alumni, together form the Big Three, also known as MBB. These three strategy consulting firms, which are unrivalled and omnipresent on a global scale, employ tens of thousands of people and generate cumulative sales of over 30 billion dollars. Considered the world's most prestigious strategy consulting firms, they have a reputation for having the "smartest people", offering the best remuneration packages and the best career prospects.
These firms are also renowned for attracting "biggest name clients", enabling them to manage projects that are both challenging and impactful. The competitive advantages they have developed seem to make McKinsey, BCG and Bain almost untouchable for other firms, with the exception of a few specific clients or projects.
Through an in-depth analysis, this article presents how MBBs have become leaders in strategy consulting, what their competitive advantages are and how they try to differentiate themselves from each other.
Historical introduction: in the beginning there was McKinsey
McKinsey was founded in Chicago in 1926 by James O. McKinsey, whose ambition was to help managers of the world's largest companies make the right decisions. The profession of strategy consulting, on the other hand, originated with Marvin Bower, who joined McKinsey in 1934. He developed the profession, led McKinsey's global expansion and created many of the tools used by consultants. He was the first to introduce the exclusive recruitment of students from the most prestigious universities, himself a Harvard graduate. He was also behind the famous "up or out" policy, based on a simple rule: promote the best profiles, get rid of the worst. However, the strategy consulting business began to develop after the Second World War, and accelerated with its internationalization in the early 1960s. At the same time, BCG was created in 1963, originally as a branch of the Boston Safe Deposit and Trust Company. Ten years later, in 1973, BCG alumni set up Bain & Company, which became the third and last firm of the famous MBBs. From the end of the Second World War to the present day, strategy consulting has developed strongly, and the MBBs have become its leaders.
Does McKinsey's seniority give it an advantage over BCG and Bain? It's hard to say, given the complexity of differentiating between the two firms. The most factual way to compare them is surely to look at their market share and financial results. Unfortunately, MBB's financial results are not official, as they are not required to publish any financial information. According to an article in Consultor, available here, the revenues of the three firms in 2021 were as follows:
- McKinsey €15 billion
- Boston Consulting Group €11 billion
- Bain & Company €5.8 billion
McKinsey is therefore well ahead of the other two firms, with almost three times the revenue of Bain and €4 billion more than the Boston Consulting Group. McKinsey is the numerical leader, but does having more sales than its competitors mean it has a competitive advantage?
See also : Strategy consulting firms
McKinsey, the undisputed leader in MBBs?
Popularized and theorized by Michael Porter, competitive advantage can be defined as the singular mastery of specific resources and skills in one's market, enabling superior performance to that of one's competitors. In strategy consulting, the main competitive advantages could be a firm's reputation, R&D and expertise. However, the resources and skills of MBBs, the sources of their competitive advantages, are so similar that it is almost impossible to differentiate them. A review of competitive advantages.
1. Reputation: the sacrament of strategy consulting firms
The reputation of a strategy consulting firm is built up over many years, and is the result of actions taken in the present and in the past. The MBBs enjoy a very strong reputation, in no way comparable to that of other firms, and unquestionably a source of value creation. For better or for worse, a strategy consultancy's reputation enables it to maintain its market position over the long term and create a sustainable competitive advantage. A reputation that is most often built on past client successes and the creation of new business methodologies, concepts and tools. Marvin Bower understood the importance of reputation as early as 1937, when he laid down McKinsey's main rules: put the customer's interests ahead of its financial interests, tell the customer the truth even if it's hard to hear, and only accept assignments that the firm is capable of handling. Reputation is very important for attracting and retaining customers. It is also important for recruiting the best profiles, the lifeblood of any firm. All the rankings of strategy consulting firms focus on reputation, and in every case McKinsey, BCG and Bain are the top three. In the Vault rankings, for example, all three firms score above 9/10 on this criterion.
Thanks to their reputation, MBBs have succeeded in creating unique relationship networks that take years to build up for other firms. The long cycle of this industry makes it very difficult to turn things around, certainly not for 15-20 years unless there is an extreme shock, such as a media scandal?
Is McKinsey's reputation in trouble? The American firm has rightly been the target of numerous scandals in recent years: corruption cases in Africa, contracts with authoritarian governments in China, Sudan, Turkey, Ukraine and the legal cases linked to the promotion of OxyContin, causing one of the biggest health crises in America. All these situations led McKinsey Partners to decide not to renew the mandate of CEO Mr. Sneader, a first in the firm's history. McKinsey France is not to be outdone, with here too its share of scandals for the Paris office triggered by the election of President Macron. Indeed, the president's party, En Marche, was made up of several McKinsey consultants. Not declared in the campaign accounts, the role played by his consultants was sharply criticized both by the other parties, and also by public opinion. The same was true of the covid crisis, where the public did not appreciate that part of the health management was entrusted to an American consultancy firm. Investigations followed, including a Senate inquiry into the role of government strategy consulting firms, which singled out McKinsey in particular. Finally, to cap it all, McKinsey France is accused of not paying taxes in France, and rightly so, since the firm's results are consolidated worldwide.
What is McKinsey's problem? From the outside, the firm seems to be facing structural problems due to its strong growth. The number of Partners has increased enormously, from 294 in 1989 to 2000 today, with over 20,000 consultants worldwide. Not only is it difficult to manage and control a firm of this size, but there is also talk of over-competition among the Partners, who would not hesitate to seek out new clients in darker areas. It's all speculation, but the fact remains that McKinsey's new CEO, Bob Snerfels, has a big challenge ahead of him.
2. R&D: a source of knowledge and business tools for MBBs
The world between strategy consulting and academic research is sometimes very close, with some well-known figures from research having joined firms or created their own. Research and development capabilities are nurtured by the large number of PhDs in the firms, 10 to 15% of the workforce at McKinsey and BCG. A figure that illustrates the strength of MBB's human capital. R&D is not new to the firms: McKinsey, for example, is considered to be the first to have created a public-private Think Tank, the McKinsey Global Institute, in 1990, to make the best advances in R&D available to its consultants and clients. McKinsey has also built up its expertise through the development of business tools. Among the best-known tools is the McKinsey 7S Framework, a management model developed by consultants Robert H. Waterman and Tom Peters. Another well-known model is the McKinsey Matrix, a genuine strategic tool in which each field of activity is analyzed in terms of market attractiveness and competitive positioning. The same goes for BCG, which developed the Growth Share Matrix in the late 1960s, and Bain, which developed the Net Promoter Score, a tool for measuring customer satisfaction.
The knowledge of the three firms and their ability to develop tools through R&D have enabled them to create real added value for their customers. As with reputation, R&D and the accumulation of knowledge takes years, making this competitive advantage inaccessible to other firms.
3. The expertise of MBB, these generalist and multi-specialist firms
The expertise developed by MBBs in different sectors and trades enables them to differentiate themselves, even from one another. Sometimes criticized for providing solutions deemed too generalist, MBBs have had to open up and succeed in specializing in certain fields, making them sometimes multi-specialists. Bain, for example, has had expertise in finance since its creation, and has continued to develop this sector to become a leader in private equity and M&A. BCG, on the other hand, has tended to focus its expertise on development and innovation, enabling companies to adapt to major changes. The firm distinguishes itself by the diversity of its sector-based satellite brands, enabling it to offer a range of end-to-end assignments according to customer needs: Gamma for data analysis and AI, Platinion for IT and BrightHouse for brand strategy consulting, particularly CSR. In France, McKinsey has until now also stood out for its strong market share in the public and parapublic sector, thanks in particular to the tender it won in 2019 from the Union des groupements d'achats publics (UGAP). However, following the recent publication of a Senate report denouncing the growing influence of consulting firms in public decision-making and focusing some of its criticism on McKinsey, the firm has decided to temporarily withdraw from the French public sector.
MBB's expertise, in both general and specific areas, is a real source of value creation. This expertise continues to be developed both internally and externally through the use of experts. By 2020, spending on "expert learning networks" in strategy consulting will reach $1.3 billion, compared with just $100 million in 2008. Proof positive of customers' need for expertise.
Reputation, R&D knowledge and expertise are the main competitive advantages that still make MBBs the undisputed leaders today. In some respects, they differentiate themselves, in others, they copy each other. In any case, they still seem untouchable for other strategy consulting firms. However, new trends are emerging, and the key success factors of the strategy consulting industry, based on these competitive advantages, could be set to change in the years to come.
See also: What is strategy consulting?
Future trends in strategy consulting and their potential impact on MBB leadership
An industry's key success factors are not fixed in time, and developments in the strategy consulting sector, as well as evolving needs in the business world, are sources of change. One of the first new factors is technological innovation, in particular artificial intelligence. The biggest strategy consulting firms have been working on artificial intelligence for several years, as in the case of BCG with BCG X, and McKinsey with Quantum Black, acquired in 2015. Bain, for its part, has partnered with ChatGpt to train its consultants and integrate Sam Altman's AI with its customers.
Another important factor is the diversification of business lines. Firms that have succeeded in developing real expertise in certain segments now need to diversify even further in terms of business and level of intervention. This means recruiting new profiles. Academic excellence can no longer be the only criterion, as it does not sufficiently reflect the changes faced by the firms' client industries. To be increasingly competitive in the innovation and technology sectors, and also to become more operational on certain assignments, firms need to diversify their activities and recruitment. For example, McKinsey has created the firm "Oprhoz, a McKinsey Company", which focuses on operational strategy. BCG, on the other hand, has several sector-specific satellite firms, as mentioned above.
Finally, against the backdrop of the climate emergency and growing social responsibilities, strategy consulting firms have accelerated their development on ESG topics in recent years. According to an article in Consultor dated July 2022, a quarter of the acquisitions made by strategy consulting firms between 2021 and 2022 were ESG or CSR firms. The development of this activity within firms reflects a fundamental trend in society, where everything is now linked either to the environment or to social responsibility. For example, there has been an increase in demand from strategy consulting firms for specific ESG and CSR assignments, such as how to reduce one's carbon footprint to comply with the Paris Agreements. There is also a desire to introduce ESG and CSR dimensions into more traditional missions: for example, a company seeking to increase its sales to boost growth must take its social and environmental impact into consideration. Last but not least, this is a logical step in the recruitment process, since the consultants who join strategy consulting firms after graduating are increasingly sensitive to the firm's ESG and CSR orientations, whether on assignments or internally.
Read also: 10 things you need to know before applying for a job in Strategy Consulting
MBBs the undisputed leaders, but...
McKinsey, BCG and Bain have unique competitive advantages. Protected by an industry with a long, slow cycle and high intellectual capacity, where reputation is the watchword, the MBBs are difficult to compete with. Among themselves, they are very close. McKinsey is a historical leader, Bain draws its strength from private equity and M&A, BCG from innovation development. Between them, they cover the same sectors and the same businesses, with one having more expertise than the others in certain areas. They have always been able to maintain their competitive advantages, while renewing and improving them. However, the key success factors for strategy consulting are changing rapidly. MBB's competitors could take advantage of this and become serious challengers by integrating current issues more quickly: AI, business diversification, ESG and CSR.
Today, McKinsey, BCG and Bain are in no danger of losing their competitive edge. But beware: by definition, a competitive advantage belongs to a player on a semi-permanent basis, and cannot be held ad vitam aeternam, even for MBBs.
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