Public sector consulting

By Edward Haigh

Following the publication of a study, led by Bristol University, into the use of management consultants by the NHS, the British press is full of predictably lurid headlines: “Hospitals ‘waste more money’ after hiring management consultants,” affirms The Telegraph. “Consultancy firms make hospitals worse” declares The Times.

At the heart of the story is the finding, by the study, that NHS Trusts that hire management consultants in a bid to cut costs actually end up spending more than they save. That may be true, but I’ve got three questions:

What does the study consider a management consultant to be?

Consulting tends to be a bucket into which all sorts of otherwise tricky to categorise areas of expenditure get lumped. It will, no doubt, include the use of external advisors to reduce costs, but it may also include a fair amount of contingent labour. Firms like the Big Four are routinely used, by some organisations, to provide capacity where internal resources are scarce, and calling those resources “management consultants” somewhat misses the point. They’re not there to deliver value as a multiple of their fee: they’re there, like any permanent member of staff, to help the organisation get a job done. Our research routinely finds the end client telling us that they get no more in value than they pay in fees, and being completely comfortable with that.

The big news out of the pharmaceuticals world last week was Merck’s acquisition of Massachusetts biotech firm and “superbug” innovator Cubist for an impressive $9.5bn. This move fits nicely with a larger trend – perhaps most evident in a recent wave of large-scale asset swaps – that sees big pharma M&A activity moving away from deals aimed purely at increasing market share and towards those intended to intensify a company’s focus on the things they’re really good at.

2011 turned out to be another difficult year for public sector consultants in the UK, with little improvement even on the horizon, our research shows.  A “nuclear winter” was how one firm characterised it.  Some money is still being spent on consultants, particularly on new technology, security and international aid, but there’s also been a change in what organisations are looking for: the emphasis now is on deep expertise, not using consultants to plug gaps in line management.