As it enters its second century, the world's most famous consulting firm is shrinking, losing ground to BCG, and counting AI agents as part of its workforce.
Great post! It’s a fascinating look at when brand and core competency - strategy - becomes a core rigidity for the firm. That said, I can empathise with why a firm resists change. It’s a hard sell telling your partners and staff that the work, skills and expertise their entire careers have depended on is losing relevance in a changing market.
I'd be curious to get your take on:
- Why consulting firms prefer alliance models instead of stronger partnerships like an actual stake in an AI company - is it because business models aren't compatible, investments are too risky or just simply lack of capital because the valuations are so high?
- Would love your take on Project Acorn and see how that fits in with the consulting industry shift
You are right that the messaging is a human problem. But empathy for the change resistance is reserved for firms that didn't make their whole brand about advising companies that they need to change :)
On alliances versus equity stakes: it's all three of your reasons, but in a specific order.
1. The business model incompatibility. A consulting partnership distributes profit to current partners annually. A technology investment locks up capital for years with uncertain returns. Every dollar invested in an AI company is a dollar that doesn't go into this year's partner draw, and in a partnership, that's a vote you have to win among people whose compensation depends on not winning it.
2. The valuations compound the problem. Even a modest stake in Palantir or a Series B AI company would require capital calls that most partnerships aren't structured to make.
3. The risk tolerance of a professional services partnership is fundamentally different from a venture portfolio. Partners are not equity investors by training or temperament. They're operators who expect annual returns.
That's why alliances are the default: they let consulting firms access technology capability without the capital commitment, the governance complexity, or the career risk to the partner who champions the investment and watches it underperform for three years.
The downside is that alliances don't build proprietary advantage. You're renting capability, not owning it, and your alliance partner can (and will) work with your competitors simultaneously.
On Project Acorn, this may deserve its own post. The plan took two years to develop. An earlier version, called Project Oak, was scrapped because it demanded too much capital from senior partners. The mechanical change is modest. So Acorn is McKinsey's attempt to do what our piece says it would recommend to a client: align partner incentives with longer-term capability investment rather than short-term cash distribution. Whether 3 to 5 percentage points of equity shift is enough to change behaviour, or whether it's a gesture that survived the partnership vote precisely because it's too small to change anything, is the question.
You're also right that the whole industry is quietly rebuilding its partnership economics. Big 4 have started moving equity partners into salaried roles, for example. The instruments differ; the direction doesn't.
Great post! It’s a fascinating look at when brand and core competency - strategy - becomes a core rigidity for the firm. That said, I can empathise with why a firm resists change. It’s a hard sell telling your partners and staff that the work, skills and expertise their entire careers have depended on is losing relevance in a changing market.
I'd be curious to get your take on:
- Why consulting firms prefer alliance models instead of stronger partnerships like an actual stake in an AI company - is it because business models aren't compatible, investments are too risky or just simply lack of capital because the valuations are so high?
- Would love your take on Project Acorn and see how that fits in with the consulting industry shift
Thanks! Nice one.
You are right that the messaging is a human problem. But empathy for the change resistance is reserved for firms that didn't make their whole brand about advising companies that they need to change :)
On alliances versus equity stakes: it's all three of your reasons, but in a specific order.
1. The business model incompatibility. A consulting partnership distributes profit to current partners annually. A technology investment locks up capital for years with uncertain returns. Every dollar invested in an AI company is a dollar that doesn't go into this year's partner draw, and in a partnership, that's a vote you have to win among people whose compensation depends on not winning it.
2. The valuations compound the problem. Even a modest stake in Palantir or a Series B AI company would require capital calls that most partnerships aren't structured to make.
3. The risk tolerance of a professional services partnership is fundamentally different from a venture portfolio. Partners are not equity investors by training or temperament. They're operators who expect annual returns.
That's why alliances are the default: they let consulting firms access technology capability without the capital commitment, the governance complexity, or the career risk to the partner who champions the investment and watches it underperform for three years.
The downside is that alliances don't build proprietary advantage. You're renting capability, not owning it, and your alliance partner can (and will) work with your competitors simultaneously.
On Project Acorn, this may deserve its own post. The plan took two years to develop. An earlier version, called Project Oak, was scrapped because it demanded too much capital from senior partners. The mechanical change is modest. So Acorn is McKinsey's attempt to do what our piece says it would recommend to a client: align partner incentives with longer-term capability investment rather than short-term cash distribution. Whether 3 to 5 percentage points of equity shift is enough to change behaviour, or whether it's a gesture that survived the partnership vote precisely because it's too small to change anything, is the question.
You're also right that the whole industry is quietly rebuilding its partnership economics. Big 4 have started moving equity partners into salaried roles, for example. The instruments differ; the direction doesn't.
Good questions. Keep them coming.