A Look at McKinsey & Company's Biggest Mistakes

Young Rae Kim |

McKinsey & Company is widely accepted as one of the best consulting firms around. The firm's influence cannot be overstated and its impressive client list includes companies such as AT&T (T) , American Express (AXP) , and General Motors (GM) , not to mention the many national governments that have sought out its assistance.

However, McKinsey has had its share of flops and duds.

A New York Times article titled “McKinsey Isn’t All Roses in a New Book”, reports on a new book that sheds light on one of the most secretive firms. The book, The Firm: The Story of McKinsey and Its Secret Influence on American Business by Duff McDonald, questions whether or not the firm is actually dependable and viable.

Here’s a look back at some of the worst advice from McKinsey & Company.

· Although it is impossible to predict what will happen in the future, McKinsey got it all wrong when they told AT&T that cellphones would be a niche market in the year 2000 with only 900,000 subscribers. The firm’s estimations were off by 108 million.

· In the 1990s McKinsey advised SwissAir on the controversial “hunter strategy”. The major expansion program failed miserably and the airline was forced to declare bankruptcy in 2001. Other notable clients who ended up bankrupt include Kmart and General Motors.



· After General Electric lost $1 Billion prior to the financial crisis in 2007, CEO Jeff Immelt told the press that the company heeded the advice from none other than, McKinsey & Company.

· The tightly sealed firm took a hit when All-State Insurance released information that McKinsey advised a profit-strategy that involved paying smaller claims to their customers.

· McKinsey & Company gave the go-ahead for the infamous $350 billion merger between Time Warner (TWX) and AOL. Looking back, the merger is viewed as one of the greatest company disasters of all time.

· The most notable stain on the firm’s reputation was its close relationship with Enron. McKinsey & Company had practically built up the company and Enron was its largest client for 15 years. The fact that CEO of Enron, Jeff Skilling, was an alumni of McKinsey raised many questions about the firm’s accountability.

Even with these blemishes in their past, McKinsey & Company continues to exert its power and influence in the business world. That such is indeed the case can be inferred from the fact that the author of the above-mentioned New York Times piece, adds this sheepish discolure in parantheses at the end:

"It should be noted that The New York Times Company recently commissioned McKinsey to help with its strategy."

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TWX Time Warner Inc. New 94.55 0.57 0.61 5,523,157
AXP American Express Company 74.91 0.62 0.83 3,415,782
GM General Motors Company 36.42 0.12 0.33 14,516,035
T AT&T Inc. 40.41 -0.04 -0.10 21,999,139
SAGA Saga Energy Inc n/a n/a n/a 0

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