My Problem with McKinsey

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📰 In this week’s edition:

• 5 procurement jobs that caught my eye

• My problem with McKinsey’s Procurement benchmark report

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🌙 Sunday Night Note

My Problem with McKinsey and their Procurement Benchmark Report

A McKinsey Procurement benchmark Report has been making the rounds this week…

I saw it referenced in Tom Mills’ newsletter and in recent LinkedIn posts by James Meads and Grzegorz Filipowski (all great follows by the way).

The article lays out the following arguments:

1/ Companies with mature procurement functions have better margins

Over 20 years of surveying CPOs, McKinsey reports that mature procurement functions have at least 5% higher margins than laggards (yes, even in the last few years with supply chain issues related to the pandemic).

My Issues:

• Check out the fine print… Data is pulled from a database of ~2000 companies surveyed between 2005 and 2024 (Most probably McKinsey clients who have filled out their Global Procurement Excellence (GPE) survey).

• How many companies are considered leaders and laggards? There are 5 categories of companies. Unclear.

• 2000 companies / by 18 years (2023-2005) is 111.11~. That means McKinsey is basing this analysis on an average of 111 yearly survey responses. How many of these were filled by the same company year-over-year? How many unique companies are we talking about here?

2/ The key to unlocking a mature procurement function is good strategy, digital and data and analytics capabilities.

When McKinsey looks at the data, leaders excel in many different dimensions but strategy, digital and data and analytics dimensions are most significant with 40%+ differences between “Leaders” and “Midde of the Pack” companies.

My Issues:

• Same as above… +

• Is it just me of the gap between “Leaders” and “Middle of the pack” companies seems larger in Category Management, Stakeholder partnering and sustainability…? Shouldn’t these be the most notable?

3/ Hence, “data-driven decision-making” is what you need to be successful and you don’t need to be a big company to take advantage!

According to McKinsey, given analytics tools are becoming increasingly accessible, even “small companies” can take advantage of the leaders’ toolsets to get into a leader position.

The article concludes:

My Issues:

• Same as above +

• Are you kidding me…? A small company is < $10 Billion (with a B)?

• I don’t even understand the chart used to support the point if I’m honest… I’ve been trying for figure it out for 10 minutes. Why are we using the fact that “big companies” have less laggards to justify that “small companies” need to adopt data and analytics engines?

• Anecdotal examples are used to justify the point being made:

  • “One international petrochemical player worked on all these dimensions as part of a major project to transform its procurement performance. […] A year later, the company had exceeded its savings targets, reducing spend in the targeted categories by $120 million per year, with an average savings of 12 percent.”

  • “A global retail chain used a data-driven procurement approach to achieve a tenfold improvement in savings across portions of its $4 billion annual indirect spend. […] By the end of the process the company had reduced indirect spend by 11 percent and achieved total cost of ownership savings of more than $500 million.”

• All of these charts scream: “low confidence level” and “HUGE error margin”… (basic statistics will save your lives folks!)

• There’s nothing “clear” to me after reading this article 😅

Why Am I Being So Rough on McKinsey?

Marketing is fine. I dabble in it myself… But just say it’s marketing… People will still respond positively.

Don’t get me wrong, I believe and advocate many of the points being made in the article (Technology is our savior in a context where we are running off a demographic “cliff”). I just hate when we mask marketing behind definitive sounding language and charts as if it’s fact…

So before you head off and build business cases based on Big Consulting’s fancy looking charts, figures and numbers, always ask yourself:

• Where is the information coming from? What does the writer want me to do? Why?

• Is this asset actually statistically relevant? Here’s a nifty table to help you evaluate if the results of a survey are meaningful or just marketing…

How to read (in our context): If McKinsey wanted to be 95% confident in their affirmations as being applicable to all companies with above $1 Billion in revenue(± 5% error margin), they would have had to survey a minimum of 300 companies a year (I stopped counting after finding 2500+ companies over $4 Billion in revenue which illustrates my point about the population size).

The Last Word…

All this “benchmark paper” unfortunately gives us is another question:

There’s unfortunately lots of marketing out there parading as fact.

Stay skeptical… Trust your company’s context and your objectives more than what others are doing and saying...

What do you think? Leave a comment with your thoughts below 👇

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