McKinsey sheds 10% of staff in two-year profitability drive

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McKinsey has cut more than 10 per cent of its staff in the past 18 months, reversing a big expansion plan that peaked during the coronavirus pandemic when consulting services were in high demand and the firm increased its workforce by almost two-thirds.

The consulting firm has about 40,000 employees, according to people familiar with the matter, compared with more than 45,000 at the end of 2023, when it most recently published a figure.

The job cuts, which are among the largest in McKinsey’s nearly 100-year history, reflect the sharp slowdown in revenue growth across the consulting market. The group has also been hit with $1.6bn in legal settlements from its work for US opioid manufacturers.

As well as laying off 1,400 back-office staff in a restructuring that began in 2023, McKinsey last year dismissed 400 specialists in areas such as data and software engineering. It also increased pressure on its weakest-performing consultants to quit via an unusually tough mid-year performance review programme last year, according to people familiar with the matter.

McKinsey’s headcount had grown by almost two-thirds in the five years to 2023 as it expanded beyond its core advisory services into larger-scale project implementation and business boomed for all consulting firms during the pandemic.

Since the consultancy boom ended, the number of staff voluntarily leaving professional service groups has swung to record lows. The reduced level of attrition has caught many groups by surprise, following the “Great Resignation” when a roaring jobs market and the effects of the pandemic led to workers quitting in favour of more rewarding or better-paid roles elsewhere.

Bob Sternfels, McKinsey global managing partner, told colleagues last year that the firm intended to be “back in balance” by the end of 2024.

McKinsey’s shrinking headcount contrasts with its smaller rival BCG, which last month reported a 10 per cent increase in global revenue to $13.5bn for 2024 and said its workforce had grown by about 1,000 people to 33,000. Its headcount stood at 30,000 two years ago.

McKinsey’s workforce was “45,000 plus” at the end of 2022 and 45,100 at the end of 2023, according to its annual reports. The report for 2024, published this month, did not include staff numbers.

The report also did not include a figure for 2024 revenue, unlike in previous years. McKinsey’s revenue was $16bn in 2023.

McKinsey said: “Our firm continues to grow and we’re doing more impactful work, in more ways, than ever. We continue to recruit robustly and will welcome thousands of new consultants to our firm this year.”

As well as slower revenue growth, the consulting industry is contending with the introduction of generative artificial intelligence, which is set to automate tasks performed by junior employees while increasing the productivity of others.

Janet Truncale, global chief executive of EY, said at the Milken Institute annual conference this month that her firm would not cut jobs in response to AI but could do more with less. “I like to think we can double in size with the workforce we have today,” she said.

McKinsey said: “Generative AI enables new levels of productivity for our teams.”