Thursday, January 10, 2019

In Which the Financial Times Unfairly Praises McKinsey & Co.

Disclaimer: We have a real love/hate thing going with the big consultancy.
The hate side is triggered by pronouncements like:
“Enron has built a reputation as one of the world’s most innovative companies by attacking and atomising traditional industry structures.”

The love side is because they employ really good graphic designers in their reports, which, if you follow the link above is immediately apparent.
From FT Alphaville:

Occam's blockchain shaver
As the world knows, the fairest and smartest of all the management consulting firms is McKinsey & Company.

So profound is their reputation for being ahead of the curve they need publish only one report to ensure a fledgling trend becomes an established norm.

Lucky for the world, back in December 2015, McKinsey's attention turned to blockchain. At this point the wisest of them all asserted:
Blockchains have the potential to dramatically reshape the capital markets industry, with significant impact on business models, reductions in risk and savings of cost and capital. 
But the truly wise also know it's never clever to make forecasts without caveats. Accordingly there were plenty.

So yes, blockchain was going to truly revolutionise the world, increasing transparency and efficiency while reducing cost, but it also remained "largely unproven in complex markets" and faced many "adoption challenges".

Hedging its bets further, McKinsey forecast adoption would be marked by four stages:
  1. single-enterprise adoption across legal entities
  2. adoption by a small subset of banks as an upgrade to manual processes
  3. conversion of inter-dealer settlements;
  4. and, finally, large-scale adoption across buyers and sellers in public markets. 
The conclusion nonetheless was clear; once challenges had been resolved rapid uptake would follow.
By June 2018, McKinsey was proud to report (albeit with ongoing caveats) that:
The insights from our analysis suggest that, beyond the hype, blockchain has strategic value for companies by enabling both cost reduction without disintermediation as well as, in the longer term, the creation of new business models.
Fanning the fomo more, they added:...MUCH MORE
On second reading, that might not be praise.
Back to our love/hate relationship, another line from that 2001 report:
Nevertheless, several large incumbents, including Enron, IBM, Nokia, and Texas Instruments (TI), have transformed themselves and emerged as winners....
How's that for a portfolio!?
And woe betide any investor who took seriously this 2013 pronouncement:
McKinsey Sees No End to the Global Commodities Supercycle

And then there was:
Yves Smith Says Nice Things About McKinsey & Co. (they're in the business of propping up diseased managements)

On the other hand they did nail it with: