McKinsey & Company, the globe’s leading consulting firm, has lost over 5,000 workers over the last 18 months the largest staff reduction in the company’s near-century history. The reductions account for over 10% of the company’s worldwide workforce, a reflection of severe adversity confronting the consulting behemoth.
From Boom to Bust
The tale starts with the COVID-19 pandemic when McKinsey embarked on a hiring binge. When businesses globally rushed to take advantage of work-from-home and drive digital transformation, in-demand consulting services skyrocketed. McKinsey’s employee base expanded by almost two-thirds, with the employee count crossing over 45,000 in late 2023.
But that which goes up must come down. As the initial shock of the pandemic wore off and companies reduced their spending, demand for expensive consultancy services moderated. McKinsey suddenly had a great deal more employees than it needed.
The Cuts Start at McKinsey
The cuts began discreetly in 2023, when McKinsey shed 1,400 back-office jobs as part of what it described as a “restructuring initiative.” The firm continued in 2024 by cutting 400 data and software-engineering roles functions that had been priorities for growth only a few years before.
McKinsey also accelerated its performance review process, which resulted in additional departures of underperforming consultants. Even some mid-level staff were offered incentive packages of their employment up to nine months’ pay to depart voluntarily.
Legal Issues Put Pressure
The staff reduction is the worst possible moment for McKinsey to be reducing staff. The firm has been facing serious legal and reputational issues, particularly its role within the U.S. opioid crisis. McKinsey has already settled $1.6 billion in lawsuits related to its consulting services to opioid manufacturers a tremendous financial blow that has stretched the firm thin.
These legal troubles haven’t just cost McKinsey money; they’ve also damaged the company’s reputation and caused some prospective customers to question whether or not to use the company’s services. Additional scrutiny of transactions with government-related firms in Saudi Arabia and China has only added to the pressure.
Industry-Wide Challenges
McKinsey is not alone in its discomfort. The whole consulting sector is facing headwinds from all sides. Clients’ budgets have constricted as economic uncertainty continues, and there is increasing competition from lower-cost, specialist companies.
Perhaps most importantly, artificial intelligence is starting to reshape the consulting profession. As AI software gets more developed, it’s starting to perform some of the analytical work that used to end up on the desks of junior consultants. This technological change is leading consulting firms to rethink their business models and personnel needs.
Competition Gets Hotter
While McKinsey is reducing headcount, some of its nearest competitors are expanding. Boston Consulting Group, for instance, posted 10% revenue growth in 2024 to $13.5 billion and expanded its employee base to 33,000 workers. This comparison illustrates how differently positioned firms are weathering the prevailing market challenges.
Despite the huge layoffs, McKinsey also continues to have a positive public image about its future. McKinsey reports that it will “welcome thousands of new consultants” next year and continues to say that it remains committed to delivering value to its clients.
But industry analysts report that the cutbacks have raised eyebrows among former employees and industry analysts. They wonder if the cuts are being implemented for market reasons or as a ploy to protect the pay of McKinsey partners while addressing legal ramifications.
McKinsey’s retrenchment is symptomatic of larger trends engulfing white-collar companies. As businesses grow more frugal and technology takes over routine work, even high-profile companies are not exempt from the radical overhaul.
For the consulting industry as a whole, McKinsey’s tribulations raise existential questions about the industry’s future. As clients grow more sophisticated and AI increasingly takes care of routine analysis, consulting companies will need to prove their value in new ways or risk being collateral damage of the very digital transformation they helped others manage.
The next few months will tell whether McKinsey’s extreme downsizing sets it up for future success or is just the start of a more profound reckoning for the consulting sector as a whole.
