The bleak mid-winter of public sector consulting

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.

So far, so much to plan: but some of these changes may have unintended consequences.

The first problem is that small and medium-sized consulting firms, that same segment of the economy the Government has vowed to help, have suffered disproportionately.  Changes to the way consulting firms are organised and deliver their services over the last decade means that smaller rarely means cheaper because large firms are better able to mix more junior staff into a project team or use resources from low-cost economies.  Larger consultancies were able to avoid making widespread redundancies by redeploying consultants from their public sector practice into other, more buoyant markets, either in the private sector or overseas.  Almost every consulting firm would claim to “do” as well as “advise”, but the reality is that, although the balance between the two varies hugely from firm to firm, niche firms generally lack the scale and range of resources required to become extensively involved in implementation.  That has counted against them as public sector consulting projects evolve to include a greater degree of implementation and delivery.

The second problem is, if anything, greater.  Only the most wilfully optimistic consultant would assume that 2012 is going to be significantly different.  Pressure to improve services has not abated, even if the cash to do so has, so modernisation and innovation will again be necessary if the Government is to avoid disappointing the public in the run-up to the next election. Based on past experience, this will fuel demand for consulting.  Moreover, many public organisations, particularly central government departments, will be trying to get more from a lot less.    In this context, the most serious issue is falling fee rates.  As this has implications for the amount consultants are paid, we expect to see two quite distinct consulting markets emerge: a private sector one which, while lacklustre this year, does not look very different to 2011; and a public sector one, where consultants are charged out for less and paid less as a consequence.  The A Team and the B team?