Defeat McKinsey

Author: Wang Yao
Publisher:
Publish Date: 2006-01-01
Features: Remember Charles Dickens' famous novel A Tale of Two Cities? The opening line is: "It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us." It seems that not only have we entered a new era, but we have truly entered an era of great change. In this era, all past development patterns may be broken, all past success experiences may need to be reexamined, and some past successful "idols" may also fall from grace. This is what economist Joseph Schumpeter called "creative destruction." Without a doubt, the consulting industry officially faced such a "creative destruction" starting in 2001. This destruction began with the Enron scandal. In late November 2001, Enron, the largest energy company in the U.S., admitted that it had illegally inflated profits by $5.86 billion since 1997 and continuously concealed debts and losses through internal transactions with affiliated companies, while management profited illegally from these activities. The company quickly filed for bankruptcy protection, becoming the largest bankruptcy case in U.S. history (the company had once ranked 16th in the Global 500). Throughout the incident, Arthur Andersen, one of the Big Five accounting firms responsible for auditing Enron's financial statements, also became a focal point. At Enron, Arthur Andersen earned $27 million in consulting revenue and $25 million in auditing revenue in 2000. Moreover, investigations revealed that Arthur Andersen had destroyed a large amount of documents related to the case. The company's reputation plummeted, and it was eventually forced to declare bankruptcy. In reflecting on the entire incident, people believed that due to the lack of complete separation between the consulting and auditing businesses of accounting firms, the overly close and independent structure inevitably led to collusion between accounting firms and clients, and the integrity of intermediaries was called into question. Under strong pressure from the U.S. Securities and Exchange Commission (SEC), the remaining "Big Four" accounting firms were forced to take action and completely separate their consulting and auditing businesses. The accounting industry had once led the management consulting industry for nearly a century, and the two had been so closely linked. However, everything was finally destroyed in the year of the new century. The losses brought by this destruction were undoubtedly enormous, and PricewaterhouseCoopers deeply felt this. In early 2000, the company had stated that it would separate its management consulting business by the end of the year. In September of the same year, HP expressed interest in acquiring its management consulting division with stock and cash worth $16 billion to $18 billion. However, the company leadership had always hoped to go public with its consulting business, even giving the new company a strange name called "Monday." Unfortunately, due to the sudden downturn in the market starting in 2001, the IPO failed. Adding to the immense pressure of the split, the company was forced to sell it to IBM for a "fire sale" price of $3.5 billion in July 2002. It is worth noting that PricewaterhouseCoopers' consulting division still generated $5 billion in revenue in 2001.