A snippet: when to use consultants

A stupid diagram which I have made small for obvious reasons.

The Mandarin asked me to provide a summary answer to this question:

What is the appropriate level of the use of consultants in the public service? Has it gone too far? Are consultants doing too much core/routine work or are they providing a vital service?

It’s a fair enough question, but rather too decontextualised for me to make much sense of it really – but I didn’t think the Mandarin wanted my musings on that, so I offered them what’s below the fold. My main point is really on contracting out in the first two paragraphs rather than consulting per se.

One can distinguish between using consultants to inform one’s strategic thinking and outsourcing routine work. Outsourcing the latter can make sense. But I recall a moment of epiphany when the Productivity Commission was being asked to report on what human services could be made more competitive. They proceeded to go about their business as someone trained in economics would, by exploring the characteristics of different sectors, such as how competitive a sector could be made and the extent to which consumers might be well informed and capable of choosing the best services for them.

These were sensible questions to ask. But since the government was funding these services, they were not normal markets. So, it seemed to me that a more fundamental question was the extent to which those responsible for running these services understood what they were doing. Did they have arrangements in place so that, as they changed arrangements, they (and ideally the wider world) would know whether things were improving or getting worse as a result? The thing is, if the agency can’t answer those questions, it doesn’t answer the question of whether it should insource or outsource the work. It answers a different and prior question. Which is whether the agency knows what it’s doing.

As for outsourcing higher level ‘strategic’ thinking to consultants, I’m a sceptic. They’re less invested in their clients’ success than insiders. They have little corporate memory (though this is offset, or even outweighed, by their ability to generalise from experience in other organisations). But the biggest problem is the way in which their output is ‘productised’ and sold. The way consultants make money is by developing some new system which seems appealing and then selling variants of it to one organisation after another. So they sell fads. And because they’re in sales mode, they’re not alive to the downsides of those fads.

An exception would be where the strategic thinking is supposed to be being provided by independent outsiders. My experience of being such an outsider is that one often needs some high quality analytical and critical skills working alongside the agency’s team to get the best result.

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1 year ago

Would agree with this. Outsourcing on anything, if you can’t write the TOR and you can’t assess whether that TOR has been adequately fulfilled, you’re in trouble. And if you can’t do this with respect to strategy, maybe you’re in the wrong business.

I’ve had one close up experience of being supported by a team from one of the very large management consultancies on strategy development. They were useful to a degree in that their networks of connections provided a wide range of inputs from across the industry. However they didn’t really have the first grasp of our industry and so weren’t able to assess what they were hearing. And so it took inordinate patience and months of work to turn their consulting output into something relevant and meaningful we could take to decision makers and apply. Which sounds like your final paragraph.

The same work could have been done in half the time if similar FTE from experienced insiders had been able to down tools on everyday issues and focus on the task. But then the recommendations on strategy wouldn’t have gone to the board within the imprimatur of the involvement of said management consultants. Nor with their admitted amazing skill in taking relatively straightforward conclusions and dressing them up into heinously complex and therefore more Board-persuasive powerpoint decks.

David Harris
David Harris
1 year ago

If you are going to outsource an activity it becomes doubly important that you don’t outsource the policing or auditing of its performance to a for-profit company. There are too many conflicts of interest. The auditor wants repeat business, so is conflicted if a bad report is given. He may get a reputation for being ‘hard to get on with’, which could lead to less business. It also needs to be competitive. Can it cut costs and still meet requirements with phone auditing of paperwork rather than random visits? Can they use cheaper, but less knowledgeable people or will they use auditors/inspectors who know the field well enough to spot issues? With a bad report the auditor may make an enemy of the company. Such messengers do get shot.

Paul Frijters
Paul Frijters(@paul-frijters)
1 year ago

As a student I published a piece on the three things consultants do: i) provide specialist skills that the organisation seldom needs and hence would not find it worthwhile to generate themselves, ii) as a means of a hierarchy to talk to those within the organisation who already have the answers but whom managers cannot openly consult without losing face to others in management, iii) as a means of pretending to inside stakeholders that something they wanted to do is suggested by outsiders. I would now add iv) to provide specialist skills that management does not want inside the organisation because it would make management vulnerable to true accountability.

Now, i) is a good reason to have consultants and ii) to iv) are consequences of a dysfunctional system. That is true whether the client is corporate or public sector.

If I were seriously answering the question posed to you I’d get a random sample of consulting activities and reports and judge for myself which of the four reasons I am looking at. That would be a consulting gig on its own though :-)

paul frijters
paul frijters
1 year ago
Reply to  Nicholas Gruen

thx. The fourth reason is connected to a phenomenon I first saw clearly in the Australian public service: deliberate gutting of expertise inside departments and organisations so that ministers would not face internal critique and there would be no-one with the expertise inside the ministry to leak embarrassing information or analyses to the press. Yet, the skills would still now and then be needed, so one hires these potential trouble makers as consultants, better paid but with less ability and desire to be difficult.

I don’t know if that also happens in private companies. I guess its well possible because incompetent management might see real expertise as internal competition for top jobs. Better to have them outside than inside.

There is a large element to which the distinction between workers and consultants is increasingly blurred, partially for tax reasons: powerful insiders get their organisations to “hire their services” via one-person firms registered in some tax-haven. It messes up the statistics.

Oliver Townshend
Oliver Townshend
1 year ago

Can’t really speak for how it works in the public service, but as an IT consultant to law firms, I get work from them when they don’t have in-house expertise in implementing a new system, and don’t plan having long term expertise. The trick is handing over knowledge to the key resources that they have and who stay.

IT Consulting is a significant part of the public service consulting costs. It is a sense routine work, but the individuals involved either work for suppliers, or don’t want to stay long term in the public service when they can work for themselves and go from project to project.

I do remember getting annoyed when a firm I worked for provided consultants to a Tasmanian government organisation at a high rate, while I left Tasmania because there was no such work. I suspect once the project ended that there still wasn’.t