Trillion Dollar Consulting Industry That Rules The World - The McKinsey, BCG & Bain Influence
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Summary
McKinsey & Company is the most influential company in the world. Since 2008, they have obtained $940 million worth of federal contracts with the DoD being its top client. And by the way, they don t even flinch when they do it nowadays. And matter of fact, this has become so powerful that Fortune 500 companies as well as government, like government employees, prime ministers, and presidents are coming from these big consulting firms.
Transcript
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Yes, Ideas is officially a trillion-dollar industry per year.
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That means people spend a trillion dollars per year simply for advice.
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A Tim's Donut and Coffee is the original collab.
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And now, any classic donut is a dollar when you buy any size original or dark roast coffee.
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Get a deal on the iconic duo with a Tim's Dollar Donut.
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Plus tax at participating restaurants for limited time.
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They gave $120 million to McKinsey over two years.
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And by the way, they don't even flinch when they're doing it nowadays.
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And matter of fact, this has become so powerful that Fortune 500 companies,
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as well as government, like government employees, prime ministers, presidents,
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CEO of Morgan Stanley, Vodafone, Lego, Boeing, Best Buy, Levi.
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John Legend, Grammy award winner, was a BCG consultant.
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Here's a Bain alumni where they're working at now.
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CEO of Nike, American Express YouTube, all Bain alumnis.
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So you may be asking, Pat, I don't understand where you're going with this.
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Do you want me to go be a consultant on McKinsey or Bain or BCG?
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No, what I'm trying to tell you is, it's no longer about the $120 million contract of Verizon with McKinsey.
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Today, the average person is willing to pay you for your expertise if you become a consultant.
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Okay, so if you get value out of this video, give it a thumbs up and subscribe to the channel.
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Let's talk about what many call is the most influential company in the world, McKinsey & Company.
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So first of all, they have offices in 130 cities in 65 countries.
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They advise clients like Coca-Cola, Microsoft, Disney, U.S. Department of Energy, FDA, Postal Service, Bill & Melinda Gates Foundation.
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Since 2008, they have obtained $940 million worth of federal contracts.
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With the DoD being its top client, received $120 million from Verizon over a two-year period, $13 million from U.S. Steel over a three-year period.
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Advising senior officials on developing technology for the Air Force and Space Force to evaluating the management of the F-35 program.
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They've consulted Russian weapons manufacturer, Rostec.
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They've advised China Communications and the government-owned engineering company responsible for building man-made islands in the South China Sea.
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In 2016, the same year they were advising China Communications, in 2016, in a year which McKinsey carried 64 contracts for the U.S. government, they also carried 137 contracts for Saudi Arabia.
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They advised opioid makers, Purdue Pharma, Indopharmaceuticals, Johnson & Johnson, and Mallinckrodt to help them deal with regulators, secure approval for new products, adopt aggressive strategies to increase sales, recommendation that Purdue Pharma turbocharge its sales of Oxycontin, work as a management consulting firm for the opioid industry over a 15-year period.
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And by the way, I can tell you the same thing with Bain and BCG.
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I'm trying to give you a history of how powerful some of these companies are.
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So when it comes on to consulting companies, they talk about three different types.
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One is M stands for McKinsey & Company, B stands for Bain & Company, and the other B stands for BCG.
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They're known for being the most prestigious strategy and management consulting firms in the world.
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Then the big four firms are Deloitte, PwC, EY, and KPMG.
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These are all the management consulting and accounting services referred to as the big four as they're the largest accounting firms.
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So for strategy, it's more BCG, McKinsey, and Bain.
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But since they add accounting, which is part of consulting, these are the guys who are considered the big four.
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And then you have the boutique consulting firms.
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You can talk about Oliver Wyman, PA, LEK, Rollenberger.
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And these guys focus on specialized expertise or geographically localized.
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The term Tier 2 and Tier 3 and boutique are used for this group.
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And by the way, I would add two other types of consulting firms to this.
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One being the types that target companies doing a million dollars per year up to a half a billion dollars per year.
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These guys are not interested in these companies.
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They're more interested in the bigger companies, the S&P 500, the Fortune 500 type of companies.
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What if you have a successful marriage of 32 years?
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What if you run a YouTube channel with 100,000 subs?
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How many people are stuck at 5,000 or 10,000 subs?
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The other day at a conference I was hosting, I said, raise your hand if you know how to use AI and ChatGBT.
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Out of 400 people in a room, less than 10 people raised their hands.
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People will ask you, I'm an expert in AI and ChatGBT.
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What if it's relationship, finance, business, college planning, dating, funnels, equipment to buy?
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There's also a place for those type of consultants like you.
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So you may be asking, Pat, how do I take advantage of this?
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I'm not, I don't know how to start a consulting firm.
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All I'm saying is the consulting industry, the business of ideas is changing.
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So before I give you that, let's look at how the industry's changed the last 200 years.
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During this revolution, scientific management was introduced.
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Using these techniques, firms increased their operational efficiency by analyzing and optimizing
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Widely embraced by the U.S. factory managers in the early 20th century as they scrambled
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for efficiency and required measures to speed up their workers' performance.
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Then came the management consultancy in the early 1900s, assisting managers in making choices,
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New kinds of manufacturing sparked growth and increased requirements companies' traditional
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Booz Allen Hamilton was founded and became the first management consultancy to engage with
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If you want to know who worked at Booz Allen, maybe you know John McAfee from McAfee Antivirus
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Then came demand for financial advice after the Great Depression of the 1920s.
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Following the Great Financial Crisis of 1929, the Glass-Steagall Banking Act in 1933
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separated commercial banking from investment banking and created the need for a new strategy
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This new law triggered rapid growth in demand for expert advice in banking, finance, management
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strategy, and organization, which boosted the consulting industry.
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McKinsey & Company, founded in 1926, was one of the first consulting firms to specialize
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Do you notice how the industry of advice and ideas was evolving?
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Like people are asking for new advice, just like it is today, how they may need your advice.
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The post-World War II prosperity in America created an environment where little attention
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was given to finding a competitive edge in business.
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Between 1948 and 1973, there was very little international competition in business.
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Dow Jones bull market through 50s and 60s crashed during the 70s and took 25 years to recover.
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The recession and the oil shock of the 70s created the need for strategic consulting services.
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Okay, take a look at the Dow Jones real quick here.
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If you look at the chart, you look at 1960-something when it peaked, right?
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Look what happened the next 20 years, how it drops.
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And it takes 25 years for the Dow to recover because finally people came to their senses.
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We need different people's POV to change our business.
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I remember clearly, I can give you five examples of counsel I got that revolutionized our company.
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I remember one time sitting down with a guy in New York about EBITDA.
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He says, Pat, you can have a company doing $10 million a year,
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and this company could be worth seven times EBITDA.
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But that another company here is doing $10 million a year,
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Because this is tech-enabled, and the company that buys it are not just buying the EBITDA.
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Immediately, we went and spent $3 to $5 million investing in the technology,
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and we ended up selling around 15 times EBITDA just because of this one advice.
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What do you think that one advice was worth to me?
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That's the whole idea where people become cocky and do no longer ask for advice.
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All of a sudden, they experience a plateau in their business or a downfall.
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And this is when ideas started coming up like different philosophies by a legendary guy in
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The growth share metrics, which was helping companies evaluate where and how to allocate
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cash among their business units or the experience curve.
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This models the evolution of cost with the number of units produced for the first time,
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By knowing your cost, you could price appropriately.
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The old-school pricing method was to price the new product high to recoup investment.
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The problem with that was that it allowed competitors to capture market share.
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So in other words, what he's trying to say is instead of trying to make it as profitable
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as possible with your product, go sell it at a price point that can get such a big market
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share of that product that your competitors can no longer compete with you.
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And by the way, he did this with a couple of companies.
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One of them being Texas Instruments Calculator.
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In 1950, TI was a leading electronics manufacturer and its biggest customer was DOD, Department
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So even though they were doing good getting these types of accounts, they wanted to expand
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And when looking for products that incorporated integrated circuits and could be sold in consumer
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markets rather than just DOD, they decided on personal calculators.
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So they invented the personal calculator in 1967, which was small and portable.
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This was a big deal because at the time, the previous calculator just a year prior to that was 55
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The average person cannot spend $2,500 in 1966 to buy a calculator.
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And they decided to price the calculator at $500 a piece, thinking they were being competitive
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So then Texas Instruments hires BCG and they made a bold suggestion based on their assessment.
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Instead of selling it for $500 a calculator, they said you should sell it for $10 a calculator.
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They said, no, here's why we suggest you do this.
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Can you imagine you're selling 45 million calculators in 1975?
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Who is the other calculator company you can even think about?
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I know you're going to say, well, I use my smartphone.
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But back then, name another calculator company.
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J. Fred Busey, who drove this initiative, ended up getting promoted to the company president
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Today, Texas Instruments has a market cap of, ready, $162 billion.
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And many of you watching this, you probably don't even know who TI is.
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Some of you who do, you're probably above 35 years old.
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One idea turned them into a Fortune 500 company.
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This is why a trillion dollars is spent every year on ideas.
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And these companies realize they're one great idea away from an explosion.
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Here's what Black & Decker did when they hired BCG.
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So these guys were stuck with a 20% market share in the 1950s for power tools.
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BCG identifies that Black & Decker sales increased when they lowered their prices.
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Black & Decker was hesitant to do this because they were concerned with recovering its investment.
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For example, when Black & Decker was selling ladders for $30, they sold 50,000 ladders that year.
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But when Black & Decker lowered the price from $30 to 1995, they sold 600,000 ladders that year.
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That's $1.5 million of sales versus $12 million in sales.
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They used market research to see how low competitors could price their products before going bust.
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And if they weren't to get that advice from BCG, they may still be small.
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And more importantly, they may have had three, four, five other competitors taking market share away from them.
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I'll give you another case study, a complete different story.
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But before they hired Bain, let me kind of give you an idea where they were at.
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So these guys are selling eyeglasses, cameras, military equipment.
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Pioneered the creation of soft contact lenses in the 60s.
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And by the 70s, they held 50% of the market for soft lenses and was responsible for about two-thirds of revenue.
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They started facing increased competition from companies like Johnson & Johnson, who were introducing new products like extended-used soft lenses.
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Bain spotted Bausch & Lomb for being vulnerable and went to work.
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They conducted market research like a spy network.
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They studied a manufacturing plant of a competitor by watching a BBC tape of the Queen touring the factory, blew up images of every piece of equipment, and reverse-engineered the factory to do a competitive cost analysis, finding out exactly what the Bausch & Lomb price needed to be, spoke with all types of eye doctors for research three months.
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The final report from Bain & Company to Bausch & Lomb was that they were under serious threat from these new lens manufacturers, and they made the following recommendations.
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There were three ways to manufacture lenses, and they recommended getting into all of them.
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Bausch & Lomb had an advantage of marketing and distribution power from its prior success.
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They started to acquire manufacturers for these two types of lenses they were not making and then underpriced to new companies.
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Also recommended getting into high-end lens solutions, which could be sold at a premium.
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And by the way, this has been one of the most successful displays of consulting.
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They ended up capturing 60% of the market for new fits, 50% competitive cost advantage, and eventually they achieved market dominance.
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And by the way, the power here goes to Bain, because Bain is watching all these different companies saying, listen, you guys are struggling.
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If you hire us, can you imagine how this worked out?
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And then now these guys are sitting there saying, man, great idea, because we got the lower market share,
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and then we also got the most expensive lenses in our dominating marketplace.
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Models like the experience curve and growth metrics were eventually exposed.
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It became clear that a specialized approach was needed on a case-by-case basis.
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Simultaneously, the need for IT guidance and knowledge expanded at an exponential rate.
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Due to antitrust concerns, computer companies were prohibited from selling their expertise,
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created the opportunity for independent vendors to offer IT consulting services.
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The big four quickly expanded their services from accounting and auditing to include consulting.
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They occupied the IT consulting niche market, and by the mid-90s,
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that surpassed the majority of the other consulting firms in size,
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IT consulting is the largest and fastest-growing segment of management consulting
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This was more about strategic management, information technology, human resource consulting,
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digital management consulting, meaning you could specific, go to,
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Boom, I want to know how to retain better people.
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Boom, I want to know how to create better culture.
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It was whatever the specific niche was, this came next in the 2000s.
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And by the way, you keep hearing about the evolution,
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the current evolution of consulting is how you can predict the future.
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Matter of fact, McKinsey & Company just bought a company,
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I think it's 2015 or something, called Quantum Black.
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Quantum Black is an AI that helps harness the power of hybrid intelligence
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to create unimagined opportunities in a constantly changing world.
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So what can you and I take away from this whole history of what happened with consulting firms?
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You're either giving advice or you're getting advice.
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For you and I, I have spent millions of dollars getting advice.
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Legal, accounting, finance, business, strategy.
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Cannot tell you endless amount of money I've spent here.
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well, you want me to ask people for money for advice
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or you want me to pay money for somebody for advice?
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Do you remember how many years ago you and I didn't feel comfortable saying,
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I'm never going to post a picture of my family on Instagram or Facebook?
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I'm never going to post my location where I'm at.
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There's a lot of things that we didn't do before.
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So today, what would happen if you got the right advice on marriage?
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We just had a friend that went through a divorce.
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He's been busting his ass for 30 years to get to that number as a business owner.
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If he would have spent $5,000 on an upshot agreement, it would have been $2.5 million.
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This is normal and personal and business and content creation.
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So now if you're watching the same path, I love it.
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I want to be able to ask people for advice, but I can't afford this kind of money.
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And I feel like I can bring some advice to others, but what do I do this?
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I don't know how to ask for credit card, calendar scheduling.
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Think about Minect is only fans for experts and consultants.
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You can go to this app, look for expertise of people that have, and ask them questions.
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You can do it through text or video, or you can do FaceTime with them all in the app.
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And if you become an expert, you can decide your price point.
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You can share it with your social media and email list that you may have.
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And people will come here and pay you for advice.
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So if you got value out of this video, give it a thumbs up and subscribe to the channel.
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And if you want to start Minecting, whether it's asking others for advice or giving advice,