McKinsey plots thousands of job cuts in slowdown for consulting industry

McKinsey & Co., the well-known consulting firm, is planning significant job cuts across its non-client-facing departments. This move comes despite a celebratory atmosphere at the company's recent centennial gathering in Chicago, where executives presented an optimistic vision for the future.

Behind the scenes, however, McKinsey leadership has been communicating a different message to managers: a need for streamlining operations. Sources familiar with the matter indicate that the firm is considering cutting approximately 10% of its headcount in support roles. These potential job cuts could affect several thousand employees and are expected to be implemented over the next 18 to 24 months. The sources requested anonymity because the details are confidential.

This cost-cutting initiative at McKinsey, a firm often advising other organizations on similar strategies, reflects a period of slower revenue growth. After a decade of rapid expansion that saw employee numbers soar from 17,000 to 45,000 between 2012 and 2022, the company's headcount has since decreased to roughly 40,000. Revenue has plateaued around $15 billion to $16 billion annually for the past five years.

A McKinsey spokesman acknowledged the firm's efforts to improve efficiency, stating that the company is adapting to rapid advancements in AI, which are transforming business and society. While the company plans to reduce support staff, it intends to continue hiring consultants. Unlike a previous cost-cutting effort dubbed "Project Magnolia," this new plan does not have a specific code name.

McKinsey's current challenges mirror broader trends in the consulting sector. Clients are increasingly focused on cost reduction, leading to decreased demand for traditional consulting services. McKinsey, along with firms like EY and PwC, have been implementing job cuts in recent years to navigate this downturn. Recent cuts included 200 global tech positions as the firm embraces AI to automate tasks.

Other factors impacting the industry include potential government spending cuts on consulting and growing preference for local firms in markets like China. McKinsey has also experienced reduced revenue from Saudi Arabia, where decreased payments for consulting projects have impacted the firm's earnings. For a decade, McKinsey earned at least $500 million annually from Saudi Arabia, making it one of their largest clients.

Despite these challenges, McKinsey's top executive, Bob Sternfels, has expressed optimism about the company's future. He has emphasized the firm's readiness to overcome recent setbacks, including reputational damage stemming from past engagements with opioid manufacturers and scrutiny over its work in countries like China and Saudi Arabia. The firm paid significant penalties to resolve allegations related to its role in the opioid crisis.

At the October partner conference, which included notable figures like Dominic Barton, Ryan McInerney, Condoleezza Rice, and Oprah Winfrey, Sternfels conveyed confidence in the firm's mission and its ability to achieve future growth.