Global consultancies need some serious consultancy

On September 6, 2001, a crack McKinsey team led by Indian-born Rajat Gupta, its global CEO at that time, made a presentation to the NDA government on how to double India's GDP growth rate to 10 per cent. Legend has it that at the end of it Atal Bihari Vajpayee, the prime minister at that time, sighed: Woh to theek hai Guptaji, lekin yeh sab hoga kaise (This is all very good, Mr Gupta, but how can all this be done?)"

At that time, many thought the remark odd. Old timers recall that in the mid-1990s, Indian companies' stock prices used to move up when they announced that their next restructuring plan would be by McKinsey. Where was the room for doubt? In the light of the numbers Business Standard has unearthed, Vajpayee was prescient.

The truth is that for all the advice McKinsey and other big management consultancy firms have dished out, they are themselves in need of some serious consultancy, insofar as their Indian operations are concerned.

Data collected from the Registrar of Companies, or RoC, show that The Firm, as McKinsey is reverentially referred to, has been making steady losses in India since 2004-2005, except in 2006-07. It ended 2007-08 with a loss of Rs 2.26 crore, which was a lot better than the figure in some of the earlier years.

When contacted, the McKinsey spokesperson said: "As a matter of our global policy and as a private firm, we do not publicly discuss our workings."

When it comes to dismal financial performance in India, McKinsey is not alone; it has the company of its global peers.

Accenture, which has been in India for two decades and considers the country one of its largest developing markets, has a profit and loss account that shows a net loss before tax of Rs 18.6 crore for the year ending March 31, 2007, which was an improvement over the Rs 48.8 crore in the previous year. The firm did not reply to an email query.

Bain & Company, which has grown from four consultants in 2006 to over a 100, made a loss of Rs 15.9 crore in 2007-08. An email sent to the firm remains unanswered.

Deloitte and Boston Consulting Group (BCG) are better placed, though their profits are measly -- Rs 15 lakh in 2007-08 for Deloitte and Rs 5 lakh for BCG in 2006-07. In the earlier years, they, too, were in the red. While BCG declined to share their financial statements, since it's a private partnership, Deloitte also didn't offer its comments.

An executive of a large public sector company, which has been advised by one of these firms, was surprised to hear that they were not really well off themselves. He said it was ironical.

Rajeev Karwal, founder of Milagrow, which focusses on advising small and medium enterprises, said, overstaffing, overpaying and a matrix style of working ailed consulting firms. While they advised companies to be lean, they did not live by the principle.

There could, however, be a twist in the tale. According to the head of a global consultancy firm, the financial position may have a bit to do with the imperative to evolve a tax-efficient model.

"All consulting firms," he says, "make 25 to 30 per cent profits, and losses are unheard of. There could be many factors if a firm is showing losses, which could include issues such as at what rate revenues are coming or the cost of manpower."