Sahil Merchant’s entrepreneurial skills were sharpened by his experience at Mag Nation. Now at McKinsey, he’s at the leading edge of its new style of management consulting.
By David Walker
Sahil Merchant’s entrepreneurial streak may have its roots in early misfortune. Young Sahil grew up on the outskirts of Melbourne, the child of two doctors who had migrated from Mumbai. In the late 1970s, his father went into what would now be called a medical start-up. It failed and, when Sahil was 10 or 11, Merchant the elder was forced into bankruptcy.
The family lost their home and many of their possessions. In that era, such events were an embarrassment, not the learning experience they would be today. Even at that age, Sahil says, “I remember the stigma”.
He responded by diving into entrepreneurialism early. In his first year at university, he set up a service teaching high-schoolers to do well in the state’s new VCE assessment system; within a year, he had more than 30 young tutors working for him.
“That was part of the desire to try my hand at something my old man hadn’t been able to succeed in.”
That early experience selling services to his schoolmates also turned out to be terrific preparation for the business world of 2017, where starting new businesses and understanding customer perspectives are in-demand skills.
A new focus on implementation
Merchant is now senior vice-president at McKinsey Australia and New Zealand, leading the firm’s digital work in those countries. More than a strategist, he specialises in ensuring McKinsey’s plans for its clients’ businesses survive the sometimes distressing collision with reality.
Merchant’s prominence is a sign of McKinsey’s evolution from the firm of just a decade or two ago. At the turn of this century, it was purely the home of the world’s most prestigious strategists. If you wanted strategy implemented, that was quite different work, for which you might hire a CapGemini or a Deloitte. Today, McKinsey wants to implement its thinking itself.
The old McKinsey might not have known what to make of Merchant, who happily wears his jacket with jeans and a T-shirt featuring a monkey. Merchant joined McKinsey in 1999, left in 2005 to build his own business, and eventually returned to McKinsey at the start of 2015 to head its digital practice.
“Without that strategic focus... the guys who have to make it real fail.”
Implementation is a tough field: consultants frequently claim, for instance, that about 70 per cent of transformation projects fail. Merchant is unfazed. “I understand how to drive commercial outcomes but also bring an original perspective,” he says.
His boss – McKinsey Australia and New Zealand managing partner John Lydon – agrees. Lydon calls Merchant a “restless optimist” and highlights his readiness to toss up controversial thoughts.
“That’s why I love him,” Lydon says.
Mag Nation’s learning curve
That restlessness was shown in Merchant’s 2005 departure from McKinsey. He recalls being “passionate about starting something on my own and testing myself”. He chose an odd project for the digital age: Mag Nation, a chain of bricks-and-mortar stores selling niche paper magazines on topics ranging from T-shirt culture to psychology. Outside research concluded that its customers often saw it as something akin to a “cool library”.
The choice of venture had more to do with the business interests of his uncle and co-founder than with any grand passion for magazines. Yet the lessons Merchant learned at Mag Nation shaped his current thinking about how small and large businesses alike can expand.
In Mag Nation’s early days, Merchant and his uncle were focused on the magazines and their distributors. “We knew this product inside out,” he recalls. Product knowledge wasn’t enough. The venture struggled.
Linking operations and strategy with KPIs: gain the knowledge and skills to develop appropriate KPIs based on an interpretation of an organisation’s strategy, as well as to successfully implement a KPI reporting system.
Then Merchant had one of those epiphanies that comes when the bank account dwindles. He realised Mag Nation was attracting a group of passionate enthusiasts whose passion could be tapped.
Merchant cites that realisation as the start of his journey into digital commerce and, particularly, the field of customer experience. He and his uncle began embracing social media, analysing their customer data and targeting particular customer groups. Customers not only returned to shop, but became more emotionally invested in the business. At one point many tweeted the Mag Nation team potential locations for a proposed new Sydney store.
Staying close to your customers
Start-up experts such as Paul Graham argue that digital founders must get close to their customers in order to understand how their business should evolve; Merchant had done something similar in the offline space.
As Merchant notes, most start-up founders now know – or are quickly told – that they must study their customer interactions early. This helps them to understand what buyers really want, and how they move from the first point of contact to the decision to purchase, and on to trusting in the brand.
Bigger organisations are now also learning to think about these customer journeys as they build new business lines and distribution channels.
Merchant learned a second lesson at Mag Nation: keep experimenting. When he brought in his first professional funders, they threw his carefully constructed information memorandum into the bin and explained they were backing not his current answers but his ability to iterate, explore the feedback, learn and ultimately improve.
“That was a bit confronting at the time,” he says wryly, “but what it taught me was, there’s no better way to validate strategy than to test it.”
His first big successful experiment came from simply changing store layouts. It was a process where he literally bled for the business as the sharp shelves chewed at his fingers.
“You can see the applicability of that [testing a strategy] for large business,” he says. With enough traffic, a website change can be selectively split-tested, analysed and rolled out to the whole site in just days.
He adds: “I am still surprised with just how many large organisations have the data, have the ability to test and measure, but don’t do so as rigorously as they could be doing.”
An organisational DNA changer
With his understanding of McKinsey’s culture and of building new businesses, Merchant was an ideal hire when it started seeking out “entrepreneurs to help us with clients in the digital space,” says Lydon. His teams can include not only classic McKinsey consultants but data scientists, experience designers, systems architects, developers and specialists who coach the client team.
Merchant’s ambition now is to help companies embed the lessons of the Mag Nation experience across entire organisations. While the C suite may think easily enough about the big issues, from innovation to new markets to operational performance, Merchant argues that too many leaders and managers neglect the enablers that permanently alter how people and teams work from day to day: “the things that change the DNA”.
He sees too many organisations that can implement, say, a single digital testing project, but cannot repeat the process over and over again across their business.
He looks for positive signs – for example, a scoreboard giving staff useful numbers on how the business or the team is performing. He’s frequently disappointed: “Those enablers aren’t often well thought through.”
Strategy plus implementation
As management consulting changes, there are some who suggest that the strategy element is shrinking. Merchant acknowledges the view, and you might think it would attract him – but in fact he strongly disagrees. You need both big-picture strategy and the techniques and culture to make it happen, he argues.
“There are so many things you could be focusing on. Without that strategic focus, without that overarching framework, the guys who have to make it real fail. In terms of rapid change and great uncertainty, this is the time when strategy is becoming more important.” In the implementation phase, “when there is a lack of strategy, we feel it straight away”, he explains.
“There’s no better way to validate strategy than to test it.”
Yet he is slightly uncomfortable even being described as a strategist. He still comes across as a person with a passion for running his own businesses. He likes to bring that customer-focused, experimentation-based approach to life and see it take hold within businesses.
The chance to do that is a big part of the reason he came back to work with McKinsey clients. “I get immense pleasure from walking in and seeing the movement week after week.”
Asked to name the person who has had the most impact on them, many McKinseyites might name a management thinker such as Clayton Christensen or a firm leader such as Michael Rennie. Sahil Merchant is different. For him, it’s a barista he had to sack.
On hearing the bad news, the big, motorbike-riding, middle-aged bloke sank to his hands and knees and begged for his job, crying. For Merchant, 31 and trying to execute a business plan, it was a tough reminder that business is about “real people who go home at night and kiss their families goodnight and have real lives beyond what I see in the workplace”.
The barista, however, stayed fired; those sorts of management tasks “have to be done”, says Merchant.
Consultant, transform thyself
McKinsey’s move out of pure strategy was itself a strategic necessity. For most of its life, McKinsey has been able to stand apart from challengers such as Bain and Boston Consulting Group. With the consulting industry growing fast, the company might have been expected to continue prospering. In recent years, however, the competition has grown stronger – and client needs have changed.
Some of the increased competition comes from the Big Four accounting firms. Returning to a consulting business they vacated 15 years ago, the Big Four now have more than 40 per cent of the expanding market, according to research firm Gartner Group. Among the Big Four’s advantages, analysts agree, has been the ability to combine advice with implementation. They’ve been particularly aggressive about pursuing market share in management consulting’s fastest-growing sectors: technology and cybersecurity.
Even without the competition, though, McKinsey’s business would be changing. As London Business School’s Michael Jacobides put it at a McKinsey roundtable in 2014: “From telco to healthcare to computers, sector boundaries are changing or dissolving, and new business models are redefining the competitive landscape.”
In this era of rapid change, customer data analysis and experimentation are gaining in importance. The strategic frameworks that once buttressed the strategy consulting business, such as Michael Porter’s Five Forces, no longer seem quite so dominant. From start-ups to Google, a new generation of digital businesses is more likely to just try something than to hire a management consulting firm.
The Australian McKinsey office played a big role in the firm’s embrace of implementation, which has included a new global McKinsey Implementation unit. McKinsey’s John Lydon says the implementation function developed in response to clients’ needs. Clients were sometimes “frustrated”, he admits, that McKinsey’s advice was not able to be put into practice, “through no fault of their own”.
Now, the firm helps clients build the capacity to change and keep changing. As well as McKinsey Implementation, there’s a corporate restructuring and transformation business called McKinsey Recovery & Transformation Service, and McKinsey Solutions, which offers software tools and analytics. Sahil Merchant estimates that of the work the organisation does today, two-thirds did not exist in 2010.