The global managing director of McKinsey & Company talks about his firm’s focus on talent, the increasing demand for work-life balance, and his involvement in tackling one of the world’s most wicked problems: water scarcity. Thought Leader Interview: Dominic Barton by Karen Christensen A recent Economist article indicates that the global consult- and face significant fiscal challenges. ing industry is going ‘gangbusters’ at the moment, with dou- The combination of these five things all happening at once ble-digit growth amidst all the economic doom and gloom. has major implications for all organizations — including McKin- Why is this? sey. Whenever there is volatility or disruptive change, there is a I think it’s because we are in a period of profound change — and I strong demand for objective perspectives and analysis. Along- actually believe that this will continue for the next 20 to 30 years. side all of this, the churn rate of companies has gone up signifi- There are five particular megatrends that are converging to great cantly. In 1935, the average lifetime for an S&P 500 company was effect. The first is the re-rise of Asia and Africa’s emergence: 2.2 90 years; today, it’s about 18 years. There is a growing need at the billion people will join the middle class in Asia and Africa in the moment to innovate and to make bolder choices, as well as to fo- next 15 to 20 years — half in China alone. The second shift is dis- cus on risk management tools. These are just some of the reasons ruptive technology that is changing three times faster than man- why consulting is so in demand these days. agement, presenting both opportunities and challenges. The third shift is resource scarcity. With so many new consumers At last count, 359 ex-McKinsey-ites, who you call ‘alumni’, wanting to live and consume like ‘regular’ middle class people, were running $1 billion-plus companies. No other organiza- food, energy and water are going to be under severe constraints. tion even comes close to this. What is in the proverbial water The fourth major shift is population aging around the world at McKinsey? (even though some countries, like India and Nigeria, are young.) I think the key thing is that we are very fortunate with respect to And last but not least is the struggle that Western governments the incoming talent we attract. I will always remember Marvin are facing to deal with all of this. They have become increasingly Bower telling me that you win or lose on the talent that comes short-term in their thinking and as a result, they are gridlocked through your door. If you attract the best people, they are, in a SMITH LISA BY ILLUSTRATION 12 / Rotman Management Spring 2014 Our people told us that the nine-to-five schedule is a thing of the past, and that they want flexibility. sense, by definition going to do very well. For the 2,200 consul- efforts. We’ve put some anonymous games out there for people tants we hire each year, we look at about 225,000 applicants. to try, without the McKinsey name on them. When someone I knock on wood when I say this, but we’re fortunate to be at an does particularly well, we contact them and say, ‘We are interest- 87 per cent acceptance rate on the offers we make. Despite the ed in talking to you.’ We are very aware that there’s lots of talent ups and downs of the economy, we’ve consistently been able in places like India and Indonesia that doesn’t know who we are. to get more than our fair share of great people. The second thing is our focus on leadership development. McKinsey is a key player in the 2030 Water Resources Group We spend about $120,000,000 per year on various training pro- — a consortium of mostly private companies formed to study grams for our people. More importantly, in our job design, we try global water scarcity. Tell us a bit about the group’s work, and to provide as much variety and intensity as possible. I think one why you got involved. of the best ways to foster leadership is to have people work in dif- We have a climate change practice, and in 2008 it studied the ferent countries and industries, on different types of issues and costs involved in fighting climate change. The team, led byJere- projects — growth, turnarounds, a mix of things. Of course, we my Oppenheim, studied the biggest drivers of carbon emissions, would love for our people to stay with us forever, but sometimes, and how they could be eradicated. They developed a carbon cost their ‘higher order calling’ is to go and lead another organization curve that shows various ways to reduce emissions — some of — and that is totally fine. Those wholeave become ‘alumni’, and which require a very small investment and yield a huge return. remain part of our wider network. For example, putting insulation in buildings to curb spending on Another part of it is the apprenticeship and mentorship that heating and cooling costs. people get here, which, by the way, extends to our alumni. We In working on this, the team spoke with Nestlé and the have big alumni events every year, but those who attend aren’t International Finance Corporation, both of whom were run- that interested in hearing about what McKinsey is up to; instead, ning ambitious water programs. Peter Brabeck, who is now the they want to catch up with their friends and talk about how they chairman of Nestlé, was quite involved. It occurred to us that we can help each other out. I also think our ‘up or out’ approach should do the same exercise that we had done on carbon emis- helps. We really like to push people into the ‘deep end’, not know- sions for water, to get a sense of the costs and issues around this ing if they can swim or not. You just grow faster that way. precious resource. We decided to get a group of private-sector people together who actually rely on water for their business. Has the sort of talent you seek changed in recent years? In addition to Nestlé and the IFC, we approached Coca-Cola, Definitely. For one thing, we’ve shifted away from just hiring Syngenta, Standard Chartered Bank, New Holland Agri- MBAs. When I joined McKinsey in 1986, I was one of the very culture, SABMiller and the Barilla Group. We also drew on first non-MBA hires. Obviously, MBAs are still our core in terms some think tanks and NGOs like the Pacific Institute, the of human capital, but today the ratio is about one-to-three for World Resource Institute and the UN, and Harvard Professor of advanced degrees of varying types vs. MBAs. We hire about 30 Environmental Engineering John Briscoe was particularly help- to 40 doctors per year, lots of lawyers and nurses, to name a few. ful to us. We’re also hiring more experienced people than ever be- Together, we worked for a year looking at each of the world’s fore. Of our 2,200 annual hires, around 400 have significant past 154 large basins, studying supply and demand. What we found professional experience. That’s a pretty big shift for a company shocked many of us: we are facing a 40 per cent gap between whose traditional approach has been to bring in brand-new grad- water supply and demand by 2030. We then ‘double-clicked’ uates. These experienced professionals have things like heavy- and went deeper in examining four particular places: China, duty data analytics capabilities and restructuring expertise. India, South Africa and São Paolo, Brazil. We looked for levers Some of them have already turned around companies. that could close the gap, and what sort of investments would be We’re also trying to use technology more in our recruitment required. 14 / Rotman Management Spring 2014 FIGURE ONE: INCREASE IN ANNUAL WATER DEMAND 2005-2030 Increase in annual water demand 2005-2030 Municipal and Domestic Industry Agriculture Change from 2005 Billion m3 Percent China 178 300 54 532 61 India 33889 40 468 58 Sub-Saharan 320 28 92 440 283 Africa Rest of Asia 243 117 80 440 54 N America 181 124 21 326 43 We came up with a key finding for each of the four locations. Europe 72 100 12 184 50 The cost curve for India demonstrated that an effective solution S America 89 68 23 180 95 could be built squarely on improving the water productivity of its agriculture industry; China’s solution would largely be built off managing the rapidly growing demand from industrial and SOURCE: 2030 Water Resources Global Water Supply and Demand model; baseline agricultural production urban uses; São Paulo’s solution would depend heavily on in- based on IFPRI IMPACT -WATER base case dustrial as well as municipal and domestic efficiency; and South Africa’s least-cost solution would be built off a combination of supply and industrial efficiency levers. What particular aspects of this wicked problem are you fo- cusing on, going forward? With a major supply and demand problem on the horizon, we de- best to deliver them. As part of this, we turned the spotlight on cided to optimize our efforts by focusing more on the demand our people and their needs, and not surprisingly, we found that a side: how can we go about reducing water usage? We felt we balanced lifestyle was very important to them.