The Prof G Pod with Scott Galloway - Office Hours: McKinsey’s Mistakes, Arizona State’s Online Initiative, and the Great Resignation

Episode Date: February 7, 2022

Scott answers a question about why Peloton hired McKinsey, a company embroiled in its own troubles. He then shares his take on Arizona State’s global education initiative that aims to enroll 100 million students by 2030, and offers his thoughts on how the great resignation will impact the talent pipeline.  Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Welcome to the Property Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please visit officehours.propertymedia.com. Again, that's officehours.propertymedia.com. Again, that's officehours.propertymedia.com. First question. Professor Gow, I'm a big fan of a lot of the work that you've been doing over the past year on a lot of the content you've been producing. My question revolves around what I think has become one of your favorite companies, Peloton. Recently, they brought in McKinsey & Company and

did so very publicly, which is not normally the case when that firm comes into help. I'm just curious on what your thought is of making such a public matter of bringing in a company that's normally very secretive about the work they do. And second, what your thought is on bringing in a company that also has been embroiled in a lot of its own scandal in the past year. Thanks and looking forward to hearing. Thanks, Carter from Chicago. So Peloton hired McKinsey in January to review its cost structure and potentially eliminate jobs as the pace of revenue and subscription growth

has slowed significantly from pandemic highs. According to CNBC, revenue grew just 6% year on year in the quarter ending last September compared to a 250% increase in the same quarter in 2020. It's kind of odd to say that. There's a lot of companies that would be happy with 6% growth, but those companies are traded incredible

multiples of revenue as Peloton was. It's all about expectations. Anyways, Peloton shares ended 2021 down about 76%. Think about that. I thought it was 80%. Anyways, down a lot. So for some of the context on McKinsey's troubles that you referenced, McKinsey settled lawsuits, I think for about a half a billion dollars last year over its role in the opioid crisis as an advisor to Purdue Pharma. Jesus Christ. The firm has also paid 15 million in the past few years to the U.S. Department of Justice over conflicts of interest and bankruptcy cases.

They were involved with, I think they were involved with Gaddafi. I mean, they're just sort of advising some of the weirdest fucking people and helping companies make really bad decisions. But here's the thing. They help a lot of companies make a lot of decisions. And it's very easy to be cynical about McKinsey. I've spent the majority of my professional career running my brain to people in companies. A lot of companies publicly bring in McKinsey because what they're saying is we want outsiders to come in and validate our decisions or specifically help us think through thoughtfully what our pivot should be and how we cut costs and also kind of outsource some of the decision-making. I think that doing it publicly makes a lot of sense.

McKinsey, BCG Bank, these are all amazing businesses. They have grown much faster than the market. So the ability to come in, and in a very thoughtful and rigorous way, try and answer questions with a data-driven approach, with a ton of benchmarking, looking at what other companies are doing, and then some emotional distance, the ability to say, I'm not emotionally involved here. I'm not politicized. I'm not trying to kiss the CEO's ass, although that can happen in consulting firms. But I found, and I've worked with the CEOs of the CMOs of 34 of the 100 largest consumer companies in the last decade, a lot of times you're just validating what they already know, but they're just too goddamn close

to it. Or you're coming in and you're just sort of stating the obvious, but you're stating it and you don't know the politics around stuff. So you just say, yeah, your acquisition, hey, Unilever, your acquisition of Dollar Shave Club for a billion dollars, that was just stupid. What are you thinking that all of a sudden overnight you're going to start doing direct to consumer on shampoo? I mean, what was the point here? Or just benchmarking the shit out of the best Instagram feeds and trying to suss out what are the underpinnings? I think consulting is not only a great career, but I think organizations that bring in outsiders to ensure they're not being too insular is a great idea, as evidenced by the fact that consulting firms continue to grow. Has McKinsey bought its own wrap and maybe needs some help at a senior level, like board members who go, no, don't work with fucking Gaddafi? okay, what are the externalities here of working with a company that is sort of increasingly

directly linked with 100,000 graves every year, specifically the opioid crisis? It feels as if they lack some fiduciaries. They just have some perspective on the board to go, you know, what are we thinking? We shouldn't take this business. Investment banks have operating committees that have to approve every IPO. So, and, you know, I don't get a lot of the decisions. Like, I do not understand the decision an investment bank would make to take Robinhood public. I think Robinhood is bad for the markets, bad for young men, bad for the planet. But some very high-profile investment banks made the decision to take them public. Anyways, public statements about consultants, I think that makes sense. And in this case, it just says we're serious. We're bringing in third-party validation. It's all about brand.

McKinsey is kind of seen as a gold standard here. Just as entrepreneurs brag about Goldman taking their company public, big CEOs will pay a premium. And if it's a tiebreaker, unless Bain or BCG have real, especially a real human capital around a specific sector, people usually opt for McKinsey. But I'm a big fan of consulting as a career. I think it makes sense for companies to hire consultants.

I'm talking about my own book because I've kind of had two consulting firms, Profit and L2. And I think McKinsey, for all the shit they've given, is a fantastic place to start your career. Incredibly interesting, smart, thoughtful people. You want to play tennis with the best players in the world because you raise your own game. So in sum, I'm kind of bullish on consulting. And despite the problems, I'm bullish on McKinsey and think it makes sense for a company like Peloton to bring them in. Probably not the answer you were looking for. Question number two, Dalton from Baltimore. Hey, Scott. This is Dalton from Baltimore, and I got a question for the dog.

Ironically, coinciding with your January 20th Prof G podcast discussing fixing the U.S. higher education system, the Wall Street Journal on the same day released an article saying that Arizona State University is looking to enroll 100 million more students by 2030. It describes this initiative as a free global education initiative that will translate into 40 languages and put online material for five business courses. It goes on to say that the program will use machine learning and artificial intelligence to teach and grade, and the courses will confer academic credit as well as lead to a global management and entrepreneurship certificate.

I'm curious about your thoughts about this, if you think it's more of just a headline or if it actually has some potential weight behind interesting. And typically what you hear, you'll get pushback from faculty around how college is about the experience and they need to be more thoughtful. The accreditation institutions, which are the enforcers of the cartel known as higher ed, are totally focused on their PBS metrics where they look at curriculum and faculty. And basically they want to find their friends who are PhDs from Stanford or Carnegie Mellon, and they want to find this full breadth of curriculum, including things like leadership and ethics, which I think is ridiculous

that we think we can teach these things. I can't get my 11-year-old to behave ethically, but I'm going to teach you at 27 how to be ethical around business anyways. We stack it with a bunch of bullshit so we can charge you a quarter of a million dollars over four years. Instead, there's a large population of people who we should be charging $40,000 to get a degree in cybersecurity. The traditional BA is not for everyone.

I think it's a wonderful experience. I will be heartbroken if my kids don't decide to do it. But two-thirds of our young people do not end up with a traditional BA. And what's happened is we've decided, or the education industrial complex, or as I call it, big ed, has decided to try and create this gestalt that you failed as a parent unless you send your kids to a four-year college. They have been totally non-innovative. What if Porsche just had the 911 and never introduced the Cayenne? What if Tide just had big boxes of detergent and didn't have Tide pods? There's just been such a striking lack of innovation. The only thing that's super impressive about universities where they've innovated is they've figured out a way to increase prices 1,400% in the last 30 years, even though inflation is only up 287% through a rejectionist luxury position.

And that's brilliant. But unfortunately, the result is a transfer of wealth of a trillion and a half dollars from middle-class households to university endowments and faculty or tenured faculty and administrators. What Michael Crow and ASU are doing is absolutely visionary. And that is moving away from this bullshit rejectionist culture and the embrace of big and small tech. Now, whether some of this notion of using the terms AI over and over, whether that's a bit of like clickbait or trying to seem more innovative, whatever, that's fine. I am all for it. I am in, I am down. Anybody who wants to get improve themselves should imagine they live in a place called America where we embrace that.

Not this bullshit enforcement of an emerging caste system in America called higher ed, where we only let in the children of rich people or the freakishly remarkable. We need to go back to where we were in the 80s, where we let in good kids. They have to have some credentials or they have to have some record of achievement.

And even if they don't, give them two more years to marinate at a junior college or maybe offer them a degree in health tech or cybersecurity or construction management, whatever it might be. We have to be more innovative here. We have to lower the cost. We have to build more on-ramps into the middle class. That's more vocational funding. In Germany, about 50% of people have some sort of vocational certification. It's less than 10 in the US. And a movement towards figuring out more innovation,

more micro-certification, more unbundling, more embrace of big and small tech to bring down the cost and dramatically increase freshmen seats. I love this. Jesus Christ, what are they saying? What are they saying? 20 million people that are 100 million people by 2030? Right on, my brothers at ASU. For a little

more context on the program, which is set to launch in April, enrollment in the first round of classes will be limited to college graduates, but the university says it will include undergraduates in the near future. Credits earned in the program will be transferable to most schools and can be used to pursue a degree at ASU. I've been thinking a lot about what it means to be, I don't know, a better man, if you will, and there's pity. You pity somebody, you feel really sorry for them. I don't think people want our pity. I know I wouldn't want somebody to pity me. The next level is empathy. I can relate to your pain.

I think that's important. But the next level beyond that is compassion. And that is, I not only can relate to your issues, but I'm going to fucking do something about it. That's compassion. I'm going to move from virtue signaling and highlighting the problem to actually doing something about it. That's compassion. I'm going to move from virtue signaling and highlighting the problem to actually doing something about it. And along those lines, I don't think I've announced this. Anyways, I've given away approximately $15 million of my own

money, which is a lot of money for me. I'm wealthy, but I'm not a billionaire, to all public institutions, such as the University of Georgia, where I got to know the dean of the business school there and their law program, which helps low-income people, to the University of Illinois, that is very committed to expanding their roles. And also, also, I just gave money to ASU to fund a credential program in supply chain. Why? Because that will be great jobs. And I like the cut of these guys, Jib, saying, let's get out of this bullshit. We're not fucking Birkenbags. We are public servants. So I am down with this. Let's reshape public education. And let's all as individuals, and I'm not good at

this, but I'm getting better at it, move from pity onto empathy, and then more than anything, move to compassion. Let's do something about these issues, your time, your treasure, your talent. Move to compassion. We have one quick break before our final question. Stay with us. The Capital Ideas Podcast now features a series hosted by Capital Group CEO, Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea?

Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Hey, it's Scott Galloway. And on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So tune into AI Basics, How and When to Use AI,

a special series from Pivot sponsored by AWS, wherever you get your podcasts. Welcome back. Question number three. experience banned as a result of the Great Recession, and I'm concerned about what the future holds in a post-corona world. NPR ran a story this morning saying that college enrollment numbers are down around 1 million this year in the U.S., the lowest number in 50 years. Pair that with the overwhelming number of stories I've read and heard about the Great Resignation, and where do you think this is all heading? Are these two things even related? Which sectors are set to benefit and which are going to suffer as a result of these two phenomena? Architects are heavily reliant on the sectors we serve, and when those sectors are down, we struggle. Thanks so much, and I appreciate the wisdom. I first heard you on Preet Bharara's podcast, where I thought you gave a remarkably insightful interview, and now I'm a devout Prof G pod listener. All the best and stay safe. Catherine from Pittsburgh. Thanks for the thoughtful question.

By the way, you should be working for NPR. Specifically, you should be on radio. You have such a lovely voice. From the fall of 2019 to the fall of 2021, undergraduate enrollment at colleges and universities dropped nearly 7%, the largest two-year decrease in 50 years. Community colleges have seen a 13% drop through the course of the pandemic. As for the great resignation, or what my podcast co-host Kara Swisher calls it, and I think

it's a better term, the great reassessment, a study from the Harvard Business Review found that employees between 30 and 45 years of age have had the greatest increase in resignation rates, with the average increase of more than 20% between 2020 and 2021. Last September, Inc. reported that 40% of computer and IT industry employees had already quit or had plans to quit by 2022. At financial firms, that number was 24%, and in the healthcare industry, it was 18%. You know, I wish it'd be fun. It'd be fun to say, well, it's this and it's this. I think this is multidimensional and there's a ton of nuance here. And the honest answer is I have some ideas, but I don't know. One, obviously the pandemic was an accelerant for existing trends and could be, you could argue, is the catalyst for

this big change. I mean, when you see the earth shifting below you and you know there's an earthquake and it was because a volcano erupted, okay, that volcano is the pandemic. Now, were the plates due to shift for other reasons? Probably, but the pandemic has done a few things. One, it's dramatically increased the ability to work remotely, which means people can move to lower cost areas, which means they have more opportunities perhaps not only to make a living by renting their human capital out remotely, but also to lower their cost of living, giving them more options. In some ways, that's a really good thing. I think that something like this creates pause. It's like, okay, do I really want to continue to be working the desk at the Marriott where people are rude to me and I have to put up with the bullshit of asking them

to put their mask on and I don't like the school my kids are in and I'm not making that much money. I can go work doing something else in a lower cost town. Also, there's more opportunity in a really strong economy either to start your own business or to turn on an app and become a door dasher or an Uber driver. And those wages have come up. But I think it's a variety of factors. The fact that not as many people are going to architecture. I don't know this, but what little I do know about architects is that they're underpaid. That it's kind of, to be blunt, it's a shitty industry. It's almost like artists. You go into architecture because it's a passion project. And I know some very talented people who study architecture so they can go make $38,000 a year working for a quote-unquote name brand firm. I think it's a very difficult industry. And I wonder if it'll be good for the industry to have a dearth of architects such that they have more pricing power and aren't as many of them willing to do great work at mediocre wages. So I think there might be a silver lining here, and that is you might have more currency in the marketplace as a firm or as an architect.

But I think it is really multidimensional what's going on here, which again is a long-winded way of saying I don't know. But thank you for the thoughtful question and nice voice, Catherine from Pittsburgh. That's all for this episode. Again, if you'd like to submit a question, please submit a voice recording by visiting officehours.propertymedia.com. Thank you. comes from Alex Partners. Did you know that almost 90% of executives see potential for growth from digital disruption? With 37% seeing significant or extremely high positive impact on revenue growth. In Alex Partners' 2024 Digital Disruption Report, you can learn the best path to turning that disruption into growth for your business. With a focus on clarity, direction, and effective implementation, Alex Partners provides essential support when decisive leadership is crucial.

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