Consultant management: McKinsey loses its shine

0:02The Economist

0:10Hello and welcome to The Intelligence from The Economist. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world.

0:24Everybody knows that airlines have wildly complicated algorithms that set their pricing. Staying through a Saturday tends to be cheaper, for example. But big American carriers now have a new wheeze, and solo travelers should beware. And you can probably picture an American sports bar. Lots of beer, lots of televisions, lots of men drinking beer and watching televisions. We look at a growing trend that makes one crucial change to this scene. There are a lot more women.

1:03But first...

1:10I don't have to tell you that it's a period of great global and technological change. It's exhausting and confusing. One industry absolutely thrives on that kind of widespread confusion. Consultancy. And the reaction to President Trump's announcement of those sweeping new tariffs that go into effect next week really range from relief to shock. A seismic shift is taking place in world affairs. The United States. Geopolitics is forcing companies to rethink where and how they operate. ChatGPT today, by the way, most of the time can give you better. It's like a better diagnostician than most doctors in the world.

1:49A sufficiently good reasoning model, like slightly better, maybe GPT-5, maybe like Cloud 4.5, I don't know, could get us over the edge where all these things are suddenly possible. And then like a recruiter's work worth one week is just like one prompt. AI bosses like Sam Altman of OpenAI and Aravind Srinivas of Perplexity have entirely different questions, like where and how to replace costly humans with bots. There should be plenty of work for the folks who parachute in and tell companies how to navigate this confusing world. And yet McKinsey, the 400-pound gorilla of strategy consultancies, has somehow fallen below fighting weight.

2:30Until recently, McKinsey was growing at a stunning pace. Between 2012 and 2024, its revenue doubled. Tom Lee Devlin is the business editor of The Economist. But that now looks to have tailed off. Estimates have it growing last year by only about 2%. And since the end of 2023, it's reduced its headcount by about 5 ,000 people. So the firm, which is turning 100 next year, is really at a pivotal and uncertain moment. Now, Tom, before we get into the very present, let's look at the fairly recent past. You were talking about a period of great growth. What was going on then? McKinsey likes to pretend that its services are sought, not sold.

3:15in the words of Marvin Bauer, who was its longtime managing partner through the 1950s and 1960s. But that really wasn't the case in its most recent expansionary wave. There was a very deliberate effort that was made to grow the firm. And a big part of that was an expansion in what McKinsey did. So the firm invested really heavily in building capabilities in a number of different areas, particularly its digital practice. So it acquired at least 16 technology consultancies between 2013 and 2023. And more broadly, it made a big push into implementing its own advice, not just around technology, but also operations, procurement, supply chain, and so on.

4:00Okay. And coming to the present moment, the doldrums you describe, what's behind that? Well, the kind of macroeconomic uncertainty is obviously part of what's going on. But interestingly McKinsey's biggest rival which is the Boston Consulting Group BCG has continued growing actually very robustly so there is a lot more to the story here. BCG has played a similar game to McKinsey expanding its offerings especially around digital but my sources tell me that it's done a much better job at deploying and retaining the specialists that are needed to make that kind of advisory work successful. And the consequences have been pretty dramatic.

4:43In 2012, McKinsey was about twice as big as BCG. Last year, it was only about a fifth larger. And if things continue on their current trajectory, BCG will actually overtake McKinsey by revenue the year after next, which would be an incredibly symbolic milestone for the consulting world. But it's not just as simple as one big consultancy firm eating the lunch of another for you. Well, yes. So there's also new competitors emerging here, especially around AI. Alongside the upheaval of global trade, this is kind of the big topic on CEOs' minds right now. And they are turning to firms like McKinsey and BCG for help with it.

5:26But they're also increasingly turning to new types of partners. And one that is experiencing incredibly rapid growth at the moment is Palantir. In the second quarter of this year, its revenue grew by nearly 50 % year on year. It's now more valuable than Chevron or Coca-Cola. And Palantir is really interesting because it's a software company. It sells tools that, among other things, help companies feed their data into AI models. But its approach is to deploy its engineers with clients to help them embed the technology, which ends up coming into really direct competition with some of the AI services that McKinsey is offering.

6:06And other technology providers, even the likes of OpenAI, are starting to offer similar consulting-like services. Consulting-like services. Sending your guys into a company to make it better, it is kind of consulting-like, you have to admit. But these guys are really just narrowly focused on the AI, right? Are they a threat to the kind of the broader model for the likes of McKinsey? There are certainly limits to how much of a disruption this will be. And there's plenty of people that argue that consulting is always going to be a sideshow for these companies. They'd much rather be seen by investors as software firms.

6:40But the reality is, is that a lot of bosses are very focused on AI and they're very frustrated with their challenges around making productive use of it. And so I suspect that a lot of technology providers are going to conclude that it's actually really essential for them to be in the trenches with clients. not least because working this way will help them improve their tools. And so what you may see is this pushing McKinsey and its traditional competitors back towards their more traditional role as a strategic advisor. And the good news for them is that for now, that core business is growing healthily.

7:16But, you know, eventually AI could disrupt it too. What do you mean by that? Well, I'll put it this way. Strategy projects, from my experience, basically bundle together two things. One is a lot of kind of deep, profound cogitation. And then there's just a huge amount of grunt work, crunching numbers and preparing PowerPoint slides that underpins that. And that's usually done by the most junior people on the team. And before long, a boss is going to be able to do a lot of that. And if you're a senior partner, you might think that sounds great because you can have fewer of those junior people in your books.

7:51But if a lot of the work behind a project can be done by a technology that clients can basically access themselves, that may start to lead to a kind of compression in fees. And McKinsey and other strategy consultancies are betting that their libraries of intellectual property will give them some protection here, which is true. And they've all trained up their own bots on these corpuses of intellectual property. But I think it would be a big mistake really to underestimate how quickly these AI models could improve. So McKinsey's second centuries is going to present some very profound challenges for it.

8:27But I'm reminded of the notion that people often overestimate the short-term effects of a technology and underestimate the long-term. Once all those AI tools get democratized and everybody's working from the same hymn sheet in that regard, McKinsey goes back to what you yourself called the sort of core role as strategic advisor. They'll just simply find new things to advise on in a new world where AI is really sort of spread out, don't you think? Maybe. You know, consultants have an incredible knack for jumping on whatever the next management fad is and turning it into a successful line of business.

9:04So possibly, who knows over the long term what's going to happen. I think what we can say for certainty is that the industry is headed for a period of a lot of change. Tom, thanks very much for your time. Thanks for having me. www.telligenceair .com always charge different amounts to different passengers for the same flight, even if they're sitting next to each other, based on factors like how far in advance they booked and whether they're flying on a weekday or a weekend. However, just in the past year or two, big American carriers have developed a new strategy to distinguish between leisure travelers and those who are likely flying for business, charging more on bookings where passengers are flying alone than with a companion.

10:14Dan Rosenheck is our data editor. The discovery of this practice a few months ago has created outrage in the travel blogosphere, and upon seeing one of these posts, I decided to dig into the data to see how prevalent it was.

10:31So when you say dig into the data, what do you mean by that? What did you do? On July 20th, I went to an API interface to Google Flights and downloaded the fares for every single domestic flight on one of the big three carriers in the U.S. on July 28th. I got a total of 19 ,000 fares for 3 ,200 flights, covering both one-ways leaving on July 28th and round trips leaving that day and returning either the following Friday or Saturday for both one and two passengers. And did you see the effect that seems to have people riled up? Flying solo is costlier than being one half of a couple. The solo traveler penalty or volume passenger discount, depending on how you want to frame it, definitely does exist, but it varies very much by carrier and to a lesser degree by city.

11:17Delta does not do it at all. They were actually the first ones to be quote unquote caught doing it, but backed off quickly. United does it sparingly. They also backed off, but have dipped their toes into the water again cautiously. And American Airlines appears to be all in on this thing. In my data set, which of course only covers direct flights on one day, searched one week before, but in that data set, 57 % of flights on American Airlines charged more per person for a solo passenger than a two-traveler booking. That compared to single digits for United and not at all for Delta. When you say charging more, like how much more?

12:01A little more? A lot more? It depends on the flight. The most common case is that one passenger and two passengers pay the same, but the second most common case is a pretty big difference. As one representative example, if you look at a flight on American from Greenville, South Carolina to Charlotte, North Carolina on July 28th, the Friday return trip costs$811 for one passenger and$565 per person for two. If you switch that to a Saturday, which means you qualify for the weekend stay discount, the round trip is$497 per person, regardless of whether there's one or two passengers. So that's about a 33 % difference.

12:38So it's not always the same thing. What are the factors that change how much the solo traveler gets it in the neck? Well, the first thing is carrier. Obviously, it's much more common on America than on other carriers. But within the American routes, there's definitely a lot of variation by city and route. So one very strong predictor I found is whether or not Southwest, which is a big low-cost carrier, operates the same route where Southwest is present, AA is much less likely to do this. And I suspect that's because AA fears, presumably with some reason, just to clarify, AA declined my request for an interview, so I don't know.

13:17But I suspect that it is because if they do this on a route where Southwest competes, Southwest might take their discounted price for two passengers and also apply it to the solo travelers and thus vastly undercut AA for solo travelers and prevent them from making any money on this strategy. The second biggest factor I found after the Southwest thing was it varies a lot by city and in particular, Charlotte and Philadelphia, whether you're taking off or landing from there, have really big gaps and like New York and LA much less. Right. Charlotte listeners take note. So without all of these airlines getting back to you and explaining themselves, let's do a little guesswork on why they might be doing what they're doing.

14:02The most likely explanation, particularly given the weekend stay loophole, is that this is a fairly blunt and obvious but effective method of segmenting business travelers from ledger travelers. Business travelers are much more likely to travel solo, I presume, and clearly are much less likely to fly on weekends. And so a fair differential that only applies if you are A, traveling by yourself, and B, not staying a weekend, seems like a pretty effective method of figuring out who might be paying with a corporate card. And you said Delta, first ones to be caught out, have sort of pulled back. As for these other carriers that have not, does the exposure of this tomfoolery, like, are they just going to keep doing it, even though they know we know?

14:55I would expect that they will continue to do this. The vast majority of flyers have no idea. And even if they did, they would hopefully realize that on net, this probably benefits them. Because the only way anybody ever gets to fly for cheap is if people who can afford to pay more, generally business travelers, do so. Basically, if airlines extract the max from their most profitable passengers, that means there's money left over for everybody else. They say that Sunline is the best disinfectant. That may not be the case for airfares because once this got reported, Delta and United just raised their fares on the multi-passenger bookings and made it more expensive for everybody.

15:38They didn't lower the fares on the single traveler bookings. So if you are traveling in a group, you might have been able to fly cheaper on Delta and United if word had never gotten out.

15:51Thinking pragmatically as ever. Dan, thanks very much for your time. Thank you for having me.

16:18When I walked into Jolene Jolene, it sort of felt like a normal sports bar. There are big screens showing the latest games and people sitting down and watching, drinking a beer and cheering on their favorite teams. But if you look a little closer, things look quite different. Rebecca Jackson is our Southern correspondent. You'll notice that the drinks are a little different. Instead of your typical Heineken, they've got the 9 to 5 espresso martini. On the menu, if you want something to eat, you can order the girl dinner, which is a charcuterie board with dried apricots and olives and all sorts of nice things.

16:51The people sitting around having a drink here are conspicuously lacking in Y chromosomes, and so are the athletes on the screens. In this place, it's women's sports that are the priority. Beyonce is the soundtrack in the background. And the bathrooms are gender neutral. This is a women's sports bar.

17:13And how common is this notion of the women's sports bar? It's becoming more common every day. And I like to think that this is the year of the women's sports bar. There are about 10 of them across the country. They started in 2022 with a sports bar called the Sports Bra in Portland. Love that. and this year there are at least a dozen more that are opening they've got names like babes the final period tomboys raising the bar these are all places that prioritize showing women's games over men's ones they're for people who are tired of sitting at a regular sports bar and begging the bartender to change the channel to a women's game and they're also creating a space for the queer community the bars are having a moment in part because there's just an insane hunger right now for watching women's sports.

18:02Yeah, and we spoke about that on the show around the time of the women's Euros final. I guess having bars like this is just another reflection of that popularity. I think that's right. And one of the things that these bars show is just how mainstream watching these sports is becoming. Many people attribute the rising popularity of women's sports in America to people like Caitlin Clark, a basketball player who has just smashed records. The 2024 Final Four, which is the college basketball championship game that she played in, drew 24 million viewers in its final minutes. That was more than any college game ever had on ESPN.

18:36On a recent Sunday, the Indiana Fever versus Atlanta Dream game, which is two WNBA teams, actually had more viewers than a Yankees-Red Sox game that immediately followed it. The leagues are cashing on to this new momentum. In May, a new WNBA team in San Francisco played its first game. And due to surging demand, the league has decided to add five more teams. One of those teams in Cleveland is already seeing pent-up demand. In the eight days after they announced that the team would be coming online, 4 ,000 people put down season tickets deposit. And the team isn't even set to step foot on the court until 2028.

19:12And the actor Whoopi Goldberg is starting her own TV channel called All Women Sports Network. And I think all of this just reflects that there is increased appetite for watching these games, for following these players and for having a nice drink while doing it. So from sports bars to entire cable networks here, there is an entire, a growing entire ecosystem for women's sports these days. I think that's right. And part of what excites people about this is not just the sheer athleticism. These women are certainly at the top of their game. There's more talent in these leagues than ever before. But people are also really interested in the fan base is growing around their stories.

19:49Some of these women, some of the all-stars are particularly good at social media and they're turning followers into a fan base. And that fan base is getting broader and bigger as time goes on. Chelsea Fishman, the owner of Jolene Jolene, who can often be found in a bucket hat and running shorts, told me that this is a women's sports bar, not a bar just for women. These women want to fundamentally change the way that we talk and think about sports. One told me that if women's sports are to really become mainstream, then the NBA, the National Basketball Association, ought to be renamed the MNBA, the Men's National Basketball Association.

20:28Rebecca, thanks very much for joining us. Thanks for having me on, Jason.

20:49That's all for this episode of The Intelligence. We'll see you back here tomorrow.