McKinsey scoops the NBN pool

ZDNet.com.au
news editor
Renai LeMay

commentary There is no doubt that more than a few of Australia's largest consulting firms will be cursing the name "McKinsey" right about now.

With a series of strategic appointments, the group has placed itself perfectly to benefit from the massive $43 billion slush fund the Federal Government is describing publicly as "the National Broadband Network project".

The first and most important of these is McKinsey's joint role, announced this afternoon, as lead advisor to the NBN Company, which will build and operate the network. Along with partner KPMG, McKinsey will be the NBN Co's first port of call for any advice relating to the massive project, especially over the next nine months, throughout which time the pair will be putting together the wide-ranging implementation study that will guide the NBN's future.

On paper, of course, the two firms will have a relationship of equals and benefit jointly from the work. But there is no doubt that in practice, it will be McKinsey who will be guiding the creation of the report, and by proxy, the entire future of the NBN project.

For those who don't know the top end of town that well, the difference in business focus and philosophy between McKinsey and KPMG is stark if you work for either one.

The former specialises only in top-tier management consulting services. McKinsey, and rivals like Boston Consulting Group, Booz and Bain are often brought in to provide the highest level of third-party advice to chief executives bent on restructuring their organisations.

In short, McKinsey is the brains, KPMG is the brawn.

They employ a small number of extremely highly paid, highly intelligent generalist staff who are typically forced through an ongoing series of internal hurdles until they become capable of adapting their skills to deal with any business situation. This intense, crucible-like experience is why more McKinsey employees have gone on to become CEOs than those from any other company, according to Time magazine.

In contrast, KPMG does provide some similar services, but also more specialised professional aid; it's well-known as being one of the big four accounting firms and is more commonly seen providing auditing and taxation aid, even conducting some information technology work, with a much higher headcount.

In short: McKinsey is the brains, KPMG is the brawn.

But it's not only in an advisory capacity that McKinsey has dug its claws into the NBN project. No other consulting firm was able to get one of its veterans onto the board of the NBN Co, which Communications Minister Stephen Conroy also announced this afternoon.

McKinsey got two.

Both Siobhan McKenna and Diane Smith-Gander are former McKinsey partners. Of course, both will doubtlessly serve the NBN board competently and impartially, but internally McKinsey will be counting them as allies.

Now it's one thing to note McKinsey's NBN influence as a bald fact, but quite another to know what the exact impact of company's newly revealed stranglehold on the project will be.

Here's a few guesses.

Bringing McKinsey in is a sure sign that any information about the NBN's ongoing implementation will be locked up tighter than Fort Knox and let out to the press only at Communications Minister Stephen Conroy and NBN Company CEO Mike Quigley's express desire. Don't expect any leaks.

As many people have noted, McKinsey has a reputation for being the most secretive firm around and actively shuns publicity. It doesn't need or want to see its name splashed around in the mainstream press, or even the pages of the more exclusive business publications. To much of the world, it might as well not exist.

Its sky-high connections at the CEO level — driving word of mouth marketing about its services — make that kind of advertising more a nuisance than an opportunity. In an enlightening Fortune article, Entergy Corp chief executive and long-time McKinsey client Edwin Lupberger had this to say back in 1993: "They're not a very open organisation. Even from the client side, you just get to see the tip of the iceberg."

McKinsey considers itself as the best in the buiness, and it's often right. But quality comes at a cost.

Those who've been around the block a few times will know not much has changed — I think it likely that McKinsey in 2009 is employing complicated computer data security and monitoring systems to make sure not even its own employees know everything that's going on inside the company. And rightly so, when you're dealing with reams of corporate secrets and even providing services to organisations which compete with each other.

The irony about this secrecy is that there is likely to be a degree of conflict bubbling below the surface between McKinsey's staff and the public servants at the Department of Broadband, Communications and the Digital Economy as the project progresses.

On paper, Mike Quigley is building an entire new NBN company.

In practice, his job will be mediating between McKinsey's consultants, who even in their own industry have a reputation for arrogance and an ability to work insane hours and thrive on change, and an entrenched level of government bureaucracy, which at times can feel like it's stuck in reverse. Mayhap the good folks at KPMG will fill the gap in the middle.

Lastly, I would expect to see McKinsey (as per their lead advisor role) quickly execute a series of short and sharp contracts with other firms for specialist work to aid them, particularly in technical and legal areas. I would expect to see them bring in Accenture, as well as a major law firm (but definitely not Mallesons Stephen Jaques, due to their extensive work with Telstra). Specialist technology law firm Gilbert & Tobin may get a look-in in places.

Lastly, there will be the cost.

McKinsey considers itself as the best in the buiness, and it's often right. But quality comes at a cost, and the government will end up paying through the nose for the company's services. In the previous budget Conroy's department allocated a total of $53.2 million towards consultancy fees for the NBN project.

It may just need that whole amount.