National Review: There has been a lot of discussion in the blogosphere about a research paper by Lauren Rivera that describes how elite professional service firms (top investment banks, law firms, and management consulting firms) go about hiring. ...
... I’ll focus my comments on management consulting, where I used to work for about ten years. I participated in every stage of the process from job candidate to new junior consultant to hiring partner.
Start with some quick industry background. You can divide management consulting into “strategy consulting” and “other.” Strategy consulting is the elite end of the consulting business. Most of strategy consulting can be sub-divided into two tribes: McKinsey and “Bruce Henderson’s children.” McKinsey is the industry leader. Bruce Henderson founded the Boston Consulting Group (BCG) in the 1960s. A number of BCG spin-offs have occurred since (e.g., Bain, SPA, LEK, etc.), and some of these have created further spin-offs. By far the largest and most important is Bain. Together, McKinsey, Bain and BCG (“MBB”) are the dominant elite recruiters for consulting, though a swarm of smaller strategy firms can compete successfully for the best talent.
... Rivera grossly exaggerates the degree to which access is limited to graduates of 4 super-elite schools.
... Rivera grossly overestimates the importance of extracurriculars, and grossly underemphasizes the importance of standardized test scores, and especially, case interviews.
... In my experience as a resume screener, the logic normally goes something like this.
If you don’t have at least 750 on the math SAT, you’re out. The most common score is 800. Math plus verbal scores should be well over 1500, and typically over 1550. GRE, GMAT and other scores should be scaled similarly. [ Note, this would lead to a huge overrepresentation from top schools even if institutional prestige were not directly a factor of consideration. With a filter like that there are a limited number of schools where on-campus interviews would be cost effective. But I think "typically over 1550" may be an exaggeration. ]
Then, your degree should be in something hard: math, physics, electrical engineering, analytical philosophy, computer science and so on. It’s OK to major in history or literature, but you better have some really tough quantitative or analytical classes on your transcript, and have done very well in them. [ I'm not sure if I believe this last part -- I think plenty of humanities and social science types get hired in consulting without any technical background -- especially from HYPS. ]
... In an earlier post, Steve Hsu made a useful distinction between what he calls the “soft” elite firms that Rivera profiles (investment banks, law firms and management consultancies) versus “hard” elite firms such as hedge/venture funds, startups and technology companies. He argues that the hard elite firms produce something more measurable, and therefore rely less on prestige in selecting people. This distinction is a useful starting point, but what has been happening over the past 20 years or so is the increasing migration of value from soft to hard; basically, to math, technology and analytics-intensive work. This is happening within firms and industries – the emphasis on math ability was growing within consulting in the period I worked in it, as it was within banking – and across sectors as technology start-ups and math-intensive finance became the most obvious ways to make real money in America. This isn’t random, but is happening because these are huge opportunities to create value. This is in part why I left consulting to start an analytics software company. It became obvious that this was the way to create value for clients. This won’t last forever, but has been true for some time. [ Italics mine. ]
Wednesday, December 07, 2011
Jim Manzi: How elite business recruiting really works
Jim Manzi writes about recruiting at elite consulting firms like McKinsey and BCG. The earlier post of mine he refers to is here (click through for more links, including to an even earlier post with excerpts from the Rivera paper).
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"If you don’t have at least 750 on the math SAT, you’re out. The most
common score is 800. Math plus verbal scores should be well over 1500,
and typically over 1550. GRE, GMAT and other scores should be scaled
similarly"
I find this hard to believe. Everything I've heard suggests that elite consulting firms typically have a GMAT cut-off of around 700 or so. But this would translate into a lot less than an SAT score in the mid 1500s.
I am not sure. For one thing, he has to be talking about post-1993 SATs (pre-recentering, there were generally fewer than 100 SAT scores > 1550 / year). In that context, Harvard 25-75 range is about 1390-1590 (taking M+R scores only), so I assume median is around 1490. So this equates to saying "should be above average at Harvard, maybe top 1/3 or better." That seems like a reasonable aiming point.
Harvard's reported range is 1390-1590, based off of sites like US News. But my understanding has been that colleges typically exaggerate their test scores for officials rankings publications. But see this article here.
"Oakes says he sometimes advises candidates with scores in the
mid-600s—very good by most standards—to retake the test if they're
hoping to land top-shelf consulting or banking positions. He notes that
even some of his best students have GMAT scores he wouldn't recommend
volunteering on a résumé. And with the average GMAT at top schools on
the rise, even "slightly below 700 might not be a help," Oakes says. (A
score that tops 700 is the 90th percentile.)"
http://www.businessweek.com/bschools/content/oct2009/bs20091019_412671_page_2.htm
700 GMAT is a number that I've heard bandied about numerous times, and it almost certainly translates into an SAT equivalent in the low 1400s, maybe mid 1400s.
McKinsey also recruited heavily at UPenn, my alma mater where the reported 25-75 percentile range for the SAT was something like 1330-1530. I would guess that that data has similarly been inflated and that the actual median is perhaps slightly over 1400.
"Then, your degree should be in something hard" LOL! This is completely false. I know a ton of MBB hires with humanities degrees and maybe a few soft econ classes.
Yeah, Half Sigma once wrote a few insightful reports on NY Times journalists to show that they were hardly a random set. Everyone of them came from an affluent elite background. Mostly affluent, well-connected (and, of course, smart) people can study stuff like english literature and still get a job at BCG or McKinsey. For those who come from average/normal backgrounds, STEM studies + high SATs are probably a wiser bet to get their ticket.
Here in the Netherlands, it's different but consultancy firms have their own ways to get the right kind of people at their company. For example, McKinsey (or Shell for that matter..) 'prefers' students
to have been involved in extracurricular activities such as
running/having a high profile position at a student body or AIESEC. If you worked everyday during your studies besides good grades, well great.. but stuff like that is not nearly as important. Of course, it's free for anyone to volunteer for student bodies, but, let's get real, unless your parents or family explained this to you, you'd never know its importance unless you'd finished your studies first and tried to get a job at those firms. In the past I wondered if my views weren't influenced by jealousy, but observing other countries creating barriers for getting into top jobs I no longer doubt its correctness.
Still, let's be practical. I've known two or three people at prestigious multinationals, they're always working and still have to compete like crazy to maintain their position. It's all relative. Seriously: is that really so great?
My 2c
I recently participated in resume screening for my alma mater, one of the schools on Manzi's list.
I screened 30 resumes. 29 of the candidates had enough g for the job. One candidate was a special case because she was obviously very smart, but her math skills were probably only in the top 20%. She was a polyglot but we decided she wasn't a good fit for consulting.
With so many qualified candidates, how do we determine who to interview? No, we don't just look for the highest SAT scores; once someone is above the mid 1400s, we concentrate on other factors. Someone with previous business or consulting experience is at a huge advantage. Business related extracurriculars also help, but most people who want a consulting job already have this. So basically, previous experience is what determines who gets an interview.
The process is EXTREMELY noisy. I'd be willing to bet that the best potential consultant only has a 50% chance of making it through the resume screen. Still, that's better than average.
Responding to Maciano below: regarding career tracks at "soft" elite firms or at a big corporation, I think the payoff table is worse than the ones I give below for startup entrepreneurs and "hard" (money management, trading) finance jobs. Maybe IB has a better high end payout than the other soft tracks. To me it's not attractive to be in a rat race for the best years of one's life. The appeal of some of these other tracks is that perhaps you really enjoy what you are doing (esp. startups) and/or have a shot at making enough to retire early.
Individual is a smart, conscientious, driven kid with Tier 1 credentials. But no superpowers ;-)startup / techmid: ~$200k/yr, no hits, stuck working for big company as VP, no early retirement90th: small hit, makes a few million, still working as above99th: big hit, makes >$10 million, retires early, maybe rinse and repeat99.9th: big, big hit, $100M payoff, livin' large :-)finance:mid: ~$400k/yr, lives in NJ, can't retire90th: ~$2M/yr for 10 years (mid-career), retires at 45-50 with $7-10M put away99th: same as above but with several times higher net worth and earlier exit.A professor comes out (financially) behind both of these tracks, but perhaps happier, more relaxed, more job satisfaction.If we further restrict the group of individuals to Tier 1 PhDs in physics, it seems to me that the 90th percentile outcome in finance described above is more like 60-80th percentile.
http://infoproc.blogspot.com/2011/04/banker-pay.html
Every time I see this breakdown it stings.
To me it's not attractive to be in a rat race for the best years of one's life.
As I sit here looking at the UltraMegaBigCareers HR database, I see myself under serious consideration for a lateral and a promotion to a different division. I am probably Candidate 2 for the promotion, so they are stringing me out in case Candidate 1 doesn't come in. All the while that I am wondering which number the dice will hit, I have the DARPA ADAPT BAA sitting on my desk, whispering to me. 'Come play my game, the only winner in the game you are in is The House.'
"Of course, it's free for anyone to volunteer for student bodies, but, let's get real, unless your parents or family explained this to you, you'd never know its importance unless you'd finished your studies first and tried to get a job at those firms."
Unfortunately, a similar phenomenon exists in the world of American university admissions.
http://www.theatlantic.com/past/docs/issues/2001/09/flanagan.htm
The purpose of these policies, their beneficiaries, the odd lack of fiery condemnations by our bleeding-heart journalistic class...it is an absolute scandal, one subsidized in large part by the American taxpayers in direct contradiction of even the vaguest meritocratic ideals we Americans are supposed to cherish above all else. I should probably cut this off-topic rant short, but suffice it to say that this pseudo regulatory capture may, in the long term, have serious negative consequences for our national strength and prosperity.
Is he looking for raw talent (SAT scores) or skills (math and science)? Is you're a teacher, you can do something about the second, but not the first.
Do you take into account that a banker works roughly 20% more hours? I wonder what the breakdown would look like on an hourly basis, with all forms of compensation taken into consideration.
20% more than who? All of these tracks: consulting, biglaw, IB, "hard" finance, startups are super intense. I wouldn't be surprised if biglaw and startup guys have the longest hours.
Yes good point. I am willing to consider that I may be wrong; I had always just heard horror stories about finance (well biglaw too) and thought a lot of startup guys don't work quite as hard; then again I have not been exposed to a lot of startup tech guys. So across all those rigorous fields the idea is that hours worked is roughly the same?
I'm sure hours vary, but one thing about America: you're very unlikely to make it to the top without busting your ass.
Re: tech startups, google around and you can find plenty of photos of sleeping bags under desks. How many other career tracks have that? Even rougher than that is the huge energy expenditure in: pitching potential customers, VCs, busdev partners, monitoring deals, putting out fires inside the organization, etc. etc. You have to have superhuman energy levels and determination to be a successful entrepreneur.
"You have to have superhuman energy levels and determination to be a successful entrepreneur."
This makes me more motivated to try to be a Fed and just dabble in business on my downtime. :-)
It's a tough call. First thing, I'd say try to do something that actually interests you. Second, perhaps MBA heading into Fed track might work but I'm no expert. I do know the MBA credential from a 25-50 ranked school would be enough to get you a higher GSA rank, and the Feds aren't nearly as elitist as the tracks we've been discussing.
I'll add track for biglaw:
mid: ~250k/yr, in house, no early retirement
90th: partner, ~$1-2M/yr for 30 years, can't retire
99th: partner, ~$2-5M/yr for 30 years, can't retire (wifey or hubby is living large)
99.9th: ~250k/yr, in house, stock and options worth $100M (either as a tech GC, like David Drummond @ Google, or maybe CEO of Fortune 500)
"hubby is living large"
I'd love to have a rich wife. That sounds like a great career track.
Accounting, if all you are looking for is to maximize some effort:risk:earnings function.
Steve suggests government, but that depends a lot on your personality and the specific opportunity. Running a nice restaurant is within the grasp of the group your talking about, and its a lot more volatile then being a government drone but its also a lot more free (in certain ways). The big thing about people in the bracket your talking about is that your probably going to be doing whatever your doing for life (no early retirement) so you better like it somewhat.
Note that it is possible to make it on WS with an IQ of 110-120, but only if you have very high charisma and sales ability. These jobs tend to get taken by the children of IB people and cleints though. The main purpose of earnings from high IQ peoples standpoint is so that if their children revert to the mean (you had an IQ of 140, your kids are 120) you can use your influence to get them good jobs (like generic stock sales guy at an IB, rather then selling cars). In fact a lot of people in IB fall into this category (reversion to mean from really smart parents).
Steve mentions it below, but start ups or google job are seen as the real deal for high IQ people, and IB/quant is seen as sell out. The income stream is safer but the industry and work are seen as uniformly worse. Reversion to mean kids can't make it in "hard" elite firms (like google) so they have their parents get them jobs at IBs putting togethor pitch books or some crap. However, high end quant stuff can't be done by reversion to mean kids so they bring in a few genuinly high IQ quants to do it by offering them a dump truck full of money. In general, I find quants are poorer high IQ kids that need the money more. Kids from upper middle class and higher families can afford to spend their 20s starting a company in their basement, since their parents will bail them out if they fail. Poor kids, not so much.
Of course, the children of the truly rich don't do anything with numbers or some bullshit like that. The children of the truly rich can be artists/journalist/philantropists. Heck Buffet's kid is a farmer. I'm sure they are all smart, but at a certain point your actually so rich that the idea of doing anything for money, even a lot of money, is silly.
I worked 80 hours a week when I was an IB quant. It actually made me very sick from exhaustion. I feel my experience was typical.
I pretty much agree with what David says here. Note I only mentioned govt because Shawn had said he was interested in that. Seems soul-deadening to me ;-)
Thanks for the advice.
I am actually in an MBA program right now and moved to the general track MBA away from the accounting MBA track (which I chose for the reasons you suggest, in hopes of getting a CPA) because I did very poorly in business tax and intermediate accounting I electives. I did okay in financial accounting and managerial accounting but these are core courses which everyone gets at least a "B" in. Anyways, I talked to my accounting professor who asked me if I did well in HS algebra, which I told her I did not. She said people who do well in those types of courses tend to do well in accounting because of the type of reasoning that is involved.
I think many people with and IQ in the range of 107-119 could hack it in accounting if their M score is high enough. I am low M (below 50th percentile) yet do decent on V sections, counterbalancing my overall IQ to a certain degree which is the only reason my IQ is where it is.
One of the reasons government work appeals to me is that it allows me to be part of the false economy; the peter principal does not apply so much and I can just move up based on how long I am part of the system; moreover, once I have tenure I cannot be fired do to incompetence and/or bad decision-making.
I will also add that working for the government will let me retire, although not early (maybe 55). I would be middle class, but never upper-middle, upper, or "top out-of-sight," as defined by Paul Fussell. I could afford 2-3 kids and take some boring vacations and drive a cheap car while living in a suburb. I would be pretty much just around "normals" as defined by Murray in The Bell Curve.
At least I would have solace knowing that I would not have to live next to proles and that I could potentially cull my future children away from them. Pretty much my only encounters with truly smart people however will be when I go to the doctor's office or maybe if I see one of my old tenured professors with "hard" backgrounds at the grocery store.
Maybe one day science will advance to the point where DNA can be tweaked so that children can come into the world with ability on par with Steve and Linus Pauling, while still having a lot of the DNA from the parents. I am coming more and more around to the idea that most of the world's problems will eventually be cured with genetic engineering.
If talent is so common, why not start a whole pack of consulting firms to take advantage of that talent at a lower price? Seems like a business opportunity.
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