Is McKinsey a Technology Company?
With the acquisition of Orpheus, the strategy consultancy adds spend intelligence to its “asset-based” offering.
“Together we can create a much richer solution and service offering that — with a single focus on driving impact for clients — is truly something new and differentiated in the space.” — Jörg Dittrich, Orpheus CEO
Orpheus was a poet and prophet in Greek mythology. He was a superb musician and his lyre could charm animals, trees and warriors alike. In February 2020, the eponymous software company from Germany, Orpheus Gmbh, charmed McKinsey & Company into an M&A deal that expands the consulting firm’s technology offering.
The future of consulting will be dictated less by the quality of a consultant’s intellect than by the ability of firms to successfully package their intellectual property and productize it into software.
Who is McKinsey & Company?
A storied and prestigious global management consulting firm, McKinsey & Company was founded in 1926 by James McKinsey, a lawyer, and accountant from Missouri. McKinsey started the firm to apply accounting principles to the management of corporate enterprises. McKinsey is credited with the first textbook on business budgeting, Budgetary Control, published in 1922, and the first textbook in management accounting, Managerial Accounting, published in 1924.
McKinsey began to flourish in the 1940s and 1950s, increasing their locations with six offices in the United States and six offices abroad. In 1956, McKinsey became a private organization. Its shares were then owned exclusively by McKinsey employees.
Very soon in its history, McKinsey & Company became one of the first consultancies to hire and develop recent college graduates. McKinsey also introduced its famous “up or out” policy, which encourages its junior employees to either move up to more senior roles within the company or be asked to leave.
McKinsey's early success was due to a different value proposition for corporate managers. While most early management consulting firms focused on “management engineering” approaches to increase a company’s operating efficiency and were therefore mostly useful to poorly-performing companies, McKinsey set out to market its services to help otherwise healthy companies in improving their overall strategy and execution.
Today, McKinsey is a global partnership with 30,000 consultants in 130 locations around the world. It has added a publishing arm with its McKinsey Quarterly magazine, founded in 1964, a research think thank in its McKinsey Global Institute, and a 2000+ expert-strong expert network, the McKinsey Knowledge Network.
The firm has also developed and expanded its technology-based solutions or, as it calls it, “asset-based consulting” offering, focusing specifically on business analytics and in incorporating agency-like design capabilities with McKinsey Digital. To do so, McKinsey has embarked in recent years in the acquisition of digital capabilities, software companies, and design thinking consultancies.
Who is Orpheus?
Orpheus GmbH is a Nürnberg-based leading provider of spend analytics technology, founded in 2005 by Dr. Joerg Dittrich and Michael Lauer. Dr. Joerg Dittrich has a long career as founder and executive in a variety of technology consulting and system integration firms in Germany, starting in the 1990s, and became CEO of Orpheus in January 2010.
Orpheus is a leading provider of spend analytics technology and a recognized innovator in digital procurement, offering software for spend analysis, spend transparency and initiative management. The company’s bots are designed to recognize and report any abnormalities in addition to areas for possible savings or increased efficiency. Their integrated initiative tracker plans and controls all initiatives for advancing efficiency up until their implementation. Orpheus capabilities include:
- Semantic data preparation, cleansing and classification.
- Standardized, automated spend reporting.
- Planning, monitoring, and measuring successful spends.
- Financial savings management and savings tracking.
Orpheus has raised 3 rounds of funding. The first investment came in September 2012 from Unternehmertum Venture Capital Partners, a German VC firm, followed by investments in 2014 and 2015 by other investors, including Senovo, a VC fund focused on European B2B SaaS investments.
The Deal
Orpheus was acquired by McKinsey & Company on February 10th, 2020 for an undisclosed sum.
Concurrently to the deal’s announcement, McKinsey launched its new Spend Intelligence offering, which provides services in digital procurement for their clients and offers, as Philipp Radtke, McKinsey Senior Partner and global co-leader of the Operations Practice put it, “deeper and more consistent insights into opportunities for spend optimization through an innovative combination of data, software, category sourcing expertise, and services.”
“Spend Intelligence by McKinsey will be a core element of the digitally-enabled procurement function of the future.” — McKinsey Press Release
Why it Matters
Strategy consulting firms have spent the best part of the past 20 years encouraging CEOs, CFOs and boards to embrace digital transformation and technology-enabled innovation in every facet of their business, but have remained remarkably traditional in their overall approach. In recent years, that has been changing too.
In the 2010s, consultancies worldwide have started to adapt to a changing spectrum of needs from their clients. Firms that were known for being experts in accounting, finance, strategy and IT, either developed or acquired, in a wave of acquisitions, digital design, interactive experience and product innovation capabilities, entering a turf traditionally dominated by marketing agency conglomerates.
Notable M&A buyers included Accenture (Fjord), Deloitte (Ubermind, Banyan Branch), PWC (BGT), Earnst & Young (Seren), KPMG (Cynergy), IBM (Resource/Ammirati), BCG (Strategic & Creative) and, of course, McKinsey (Agiliti).
As consultancies develop solutions built on digital capabilities — i.e. asset-based solutions, as McKinsey calls them — it makes sense that they start competing with software companies too. As clients build out big data infrastructure to leverage analytics in their business operations, consultancies with software-based solutions for procurement, supply-chain, marketing and sales analytics can capture a larger share of their client professional services, and analytics, budget.
“We’re seeing more and more that consulting organisations are interested in making tech acquisitions, particularly with specialist, niche tech solutions within the S2P ecosystem, like Orpheus IT.” — Jenny Draper, GM, Spend Matters UK/Europe
It should not be surprising then to see McKinsey’s name alongside software companies in the list of recent procurement software acquirers, such as Coupa (Spend360), Ivalua (DirectWorks), Jaggaer (BravoSolution) and Workday (Scout RFP).
Expect to see more strategy consulting firms leverage digital M&A to acquire software companies and bundle them with their domain expertise to deliver complete process solutions to their clients.
TL;DR
- McKinsey & Company acquired Orpheus on February 10th, 2020.
- McKinsey is one of the most storied strategy consulting firms worldwide and employees 30,000 consultants.
- Orpheus is a provider of spend analytics technology and an innovator in digital procurement.
- With the Orpheus acquisition, McKinsey & Company launched Spend Intelligence — a platform that provides services in spend optimization.
- Management consulting companies are acquiring and building digital capabilities to compete with software companies and digital agencies.
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