The private sector likes using consultants too

The Public Accounts Committee has released its report on the public sector’s use of consultants. It gives a figure of £2.8 billion for the total spending in 2005-06. That includes central government, the NHS and local authorities.

Here are some of the report’s conclusions:

  • Departments and OGC do not routinely know how much money is spent on consultants.
  • Consultants are often used when in-house staff have the necessary skills and are less expensive.
  • Departments do not routinely assess the value of the work they receive from consultants.
  • The capability of departments to be intelligent customers is weakened by insufficient sharing of information on consultants’ performance.
  • Departments do not regularly plan for, or achieve, the transfer of skills from consultants to their staff to build internal capabilities.

These are only a few of the report’s criticisms but I’ve picked them out for a reason. I’ll let you into a little secret. These charges could just as accurately be levelled at the private sector. Perhaps not all to a single organisation but common enough to make a few senior managers shift nervously in their seats. Often, this negligence is not all the consultants’ fault. Amidst the tyranny of project deadlines and the panic of day-to-day operational difficulties, good practices like skills transfer and budget monitoring can sometimes get lost.

Chris Dillow at Stumbling and Mumbling puts the government’s reliance on consultants down to public sector inefficiency.

More importantly, though, New Labour has failed to see a key truth. The main reason why the private sector is more efficient than the public sector is because the market acts as a cleansing mechanism, destroying (albeit slowly and imperfectly) bad management.

In my experience, that process is extremely imperfect and glacially slow. Where private companies have a near monopoly in a well established market, they can be just as inefficient as the public sector. Many of them use consultants for the reasons I mentioned in the last couple of paragraphs of the previous post; because they are easier to manage than permanent staff and because they enable managers to avoid dealing with performance issues by papering over the more obvious cracks. In the long run the company may lose enough money to collapse or be taken over but, as John Maynard Keynes said, in the long run, we’re all dead. By the time the game is up, many of the profligate executives will have moved on.  For most managers in established organisations, there is nothing to be gained from attempting to tackle performance or morale problems that might have been going on for years. Using consultants, by contrast, is dead easy. As everyone else in the company is doing it, there will only be a token challenge to the business case for yet another consultancy project.

Like their public sector counterparts, many private sector executives rely on consultants to make their lives easier. Relatively few are ever called to account.

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2 Responses to The private sector likes using consultants too

  1. Christopher Bird says:

    This article speaks the truth. If an organisation really wishes to evolve then recruit the consultant(s) to their organisation. Working from within you are far more likely to diagnosis the real problem. Having understood the issues the employee (consultant) is far more likely to attain buy-in from staff to affect change. Also the employee (consultant) becomes accountable. But hang on organisations don’t want to employ staff, that means commitment, a consultant is a cheap alternative and the escape goat when the evitable happens. Sorry cynicism wins ever time.

  2. Pingback: £2.8 billion on consultancy - that’s normal « Flip Chart Fairy Tales

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