Source: Economic Times, 02 September 2022
India will be the world’s future talent factory as it will have 20% of the globe’s working population by 2047, said Bob Sternfels, CEO, McKinsey & Co. The firm’s 13th global leader added that it will not only be India’s decade, but India’s century, with all key elements in place – a large working population, multinational companies reimagining global supply chains, and a country leapfrogging at digital scale-to achieve something special not just for the Indian economy, but potentially for the world.
McKinsey plans a “disproportionate commitment” to India and that’s why its global board will be coming to the country in December, Sternfels said. The firm has 5,000 people in India, a number he wants to double to 10,000. In an exclusive interview with ET’s Vinod Mahanta, Sternfels talks about the India opportunity, the recent scandals that have hit McKinsey, the state of the global economy, inflation woes and the threat of deglobalisation. Edited excerpt:
The Indian economy seems to have weathered the pandemic fairly well, despite hitting a few rough patches in the last two years. How do you see India’s growth story unfolding in the context of a deceleration in global economic activity?
Many people have said that it’s India’s decade. I actually think it’s India’s century when we look at some of the raw ingredients here. India is the future talent factory for the world. By 2047, India would have 20% of the world’s working population. And with supply chains being reimagined, it has massive potential for India across all aspects of manufacturing. The third is digitisation. India has leapfrogged on the digital scale. All those are the raw materials to do something special for not only the Indian economy but potentially for the world.
So does that optimism translate into more investment in McKinsey India?
I’m bringing our global board here in December because we are going to make a disproportionate commitment to India. We are about 5,000 people in India now—both in India practice and global centres—and it’s my aspiration to get to 10,000. We are about 40% women today, and I want that to be 50%. We turn 100 in 2026, so my question is, what can we be in 2026 in India.
How has the McKinsey India practice performed during the pandemic years?
Our growth in India has consistently been in double digits and is underpinned by these great client references. Our people processes are global and when we look at the performance of our Indian partners globally. They are disproportionately successful. I think that there’s an opportunity to be not just India’s decade but India’s century and in the process of doing so, how does it become a lighthouse for the rest of the world for McKinsey? I think client relationships lead in many ways in terms of the trust that we have got. At the same time, you will hear from me frequently that I’m not happy with where we are, and I don’t believe those two things are mutually exclusive. I think you can be leading and still not be happy. And what I’m not happy with is that I’m not happy with the speed. I want us to move faster. The idea of doubling our innovation is critical to staying ahead of our clients.
In the last few years, McKinsey has faced a corruption scandal in South Africa, been criticised for its work with regimes like Saudi Arabia, a few partners have been charged with insider trading, and then there’s a lawsuit related to aggressively promoting opioids. Has success led to a case of greed over principles?
I don’t think so. The world has changed. The world has become a much more scrutinous place. The work we have done has changed. I have talked to our partners about the need to evolve on two dimensions and learning how to separate these two dimensions. We need to learn to be humble and courageous at the same time. On the humble side, we need to be able to identify quickly when we have made mistakes, figure out how to fix them, and make sure they never happen again. For example, in South Africa, we have now learned much better about contracting and how you partner. I put opioids in that category. Although what we did wasn’t illegal, we didn’t take the broader context into account. We also need to be courageous in places where we disagree with the scrutiny and our skin is thick enough to keep going. Like the work we do in Saudi, where we work on health, education, housing, and we are helping the lives of Saudi citizens. We stand by that work. When we were criticised for our work on hard to abate sectors, I put an op-e in the WSJ that said we work with them because that’s where the emissions are. We are really committed to sustainability.
The global economy, which is reeling from the pandemic, stubborn inflation and Russia’s invasion of Ukraine, faces an increasingly gloomy and uncertain outlook. Are we on the edge of a global recession?
It’s easy to list all the things and even more, like the increasing socio-economic divide in almost every country in the world and increasing labour shortages. But there are some things that make these times unique. Tom Barkin, the president of the Richmond Fed and a McKinsey alum, told me, “Bob, remember, it’s hard to have a recession if you have zero structural unemployment.” We have zero structural unemployment in the US and in most parts of Western Europe. So you are running at a very low unemployment rate. That may be unlike the last two periods of disruption—the global financial crisis and the dotcom bust. Equally, I think you have started to see some of those inflationary signs start to taper off. Oil prices have started to fall below $100 a barrel. Also, in certain supply chains, you are seeing a massive influx of secondary sales in the US and Europe. So goods that were once going through primary channels are now going through discount channels because of supply chains catching up. So I would say the signals are mixed.
And what are the CEOs telling you about the state of their companies?
One of the things that I did over the past year was get out and talk to clients, and I have talked to over 500 of our CEOs in the last year. CEOs now want to play offence and defence at the same time. So defensive measures… shore up the balance sheet, increase efficiency, and ensure the company can withstand shocks. They are also saying, my balance sheet is healthier than it was in either of those downturns. And I want to actually take two or three big strategic bets so that I can come out on top. In the end, we may come out better than what some of those signals are saying, and particularly in India, I think there’s an opportunity for India to come out in a disproportionate position ahead.
In your opinion, is inflation transitory or here to stay?
I don’t have a crystal ball on inflation, but I actually think that you could see a world that is more transitory if these combined forces all play out. Combined forces of prudent interest rate policy, application of technology, which actually helps solve the supply chain side faster, and a pragmatic approach to solve some of these tough choices like energy resilience, where we adopt more brown to green.
Do you think the impact on global trade due to geopolitical fragmentation will be temporary?
I think this is one of the existential questions of our time. The order we all grew up in is coming to an end. And what a lot of people are saying is that what’s going to give way is that it’s going to go to deglobalisation. And I think that would be a big mistake. When you look at the costs, the World Trade Organization just came out with a report that said if the US and China decouple, in a very conservative calculation, 5% of global GDP gets wiped away. And it disproportionately impacts the bottom 40% of society. So there’s a massive cost associated with this. I think, quite frankly, it’s up to business leaders to start to articulate what can follow globalisation that doesn’t default to deglobalisation.
The problems that we all want to tackle—growth, climate, talent—don’t stop and start with borders. It’s hard to solve these within the boundaries and borders of individual states as opposed to some form of integrated solutions.
The second is this notion of resilience. I think as we start to think about resilience, we may define interdependence, in a different way. It’s still interconnected, but it may be a much more resilient, interconnected model. And from McKinsey’s point of view, we stand for interconnectedness; it’s core to the belief system that we’ve got.
Are you getting more questions about rising geopolitical risks after the Ukraine-Russia conflict and the China-Taiwan tension?
Very much so. How do you stress test your organisation to see how resilient it is to these types of shocks? And moving away from risk management to resilience muscle building is one of the big conversations that we are having with all CEOs.
You have kickstarted a set of changes in McKinsey. How is India practice doing on that front?
I’m very pleased with India. We’re leading the way in what I’m trying to do in the world overall. India’s a microcosm. Whether it’s diversifying talent, increasing our gender diversity, or increasing the number of sources we hire from. McKinsey has historically been thought of as being elite. But I want it to be distinctive, not elite. Elite implies exclusive, a certain number of backgrounds, a certain number of profiles. Every year, we receive a million applications for 10,000 positions, but they have historically come from less than 500 sources.
I want that to be 5000 sources. India is on that path. We going to measure what kind of impact McKinsey is having. So what I want to measure us against is that in an economy, are we making a difference to what I’m calling sustainable, inclusive growth? Is the economy that we’re in growing because of the work that we’re doing? Are the clients that we work with upskilling and adding employment or are they taking away employment? Are our clients hitting their climate goals? India is on that path too.
Last year, our clients helped drive 20% of the world’s GDP growth. They added a million net jobs, so they added employment and they moved seven times faster on their climate goals than the rest of the global 1000.
Is the firm’s rapid global expansion to be blamed for a perceived drop in standards?
No. I obsess over maintaining our culture. We’re about to turn 100. The conversation that I have engaged with all of our colleagues is how do we design a firm that’s going to last another 100 years? That’s our obligation: our second century. And that has a mix in my mind of understanding how we got here. And in my mind, that starts with preserving our values and leading the way on this notion of professionalism.
I want to continue to invest heavily in things like: what does individual accountability mean? What does compliance mean? We’re actually going to drive compliance the way that a publicly traded global firm does. That’s new for any professional service firm. Does that mean we should not innovate? Absolutely not. And I do back this notion of speed. I think we need to go faster to stay ahead of our clients to have the impact that we want to have. But I think you can be a safe and fast firm.
Are you also evaluating how McKinsey engages with clients in terms of pricing?
I want to change the model, the idea of partnering with our clients versus serving them. And that means moving from being a cost to being a co-investor. I want to co-invest with our clients on their impact journeys. What that means is that we will both put skin in the game, we will both take risks, we will have outcome-based journeys versus pure expense… that starts to change the cost equation.