The use of management consultants has grown enormously in recent years. In the UK, consultancy brings in around £10 billion a year in fees across the public and private sectors. And while not totally recession-proof, the numbers grew in the run-up to Brexit and then COVID-19. (Remember test and trace? Consultants played a major role.)
Consulting firms can provide advice and extra resources at short notice and can be very effective for the right task and client. But their use often brings controversy, especially when public money is at stake, over the value of outsourcing, for instance. This raises a number of questions. Does consultancy bring improvements such as increased efficiency? If not, how can we explain its huge growth?
In the NHS, there is a remarkable lack of clarity and transparency over how much consultancy is used and with what effects. This falls within broader concerns noted in a recent National Audit Office report on procurement across public services.
In our ongoing research on management consultancy in the NHS, we have started to address these issues.
Efficiency in reverse
Three years ago, we published an article in The Conversation showing that across a sample of 120 English NHS trusts, each spent an average of £1.2 million a year on external consultants between 2008-13. We showed for the first time that, all other things being equal, using consultants was associated with inefficiency down the line – in other words, the exact opposite of what might be expected by proponents of management consultancy.
Using two standard measures of efficiency in the health sector, the trusts became somewhere between 3.5% and 8% less efficient, depending on how you measure it. For every £100,000 spent, there were average costs of around £900 and losses of around £11,000. At the same time, the £1.2 million spent by each trust could have been put to other uses.
As you might expect, our findings attracted some attention, both in the media and from the consultancy industry. While it is impossible to definitively prove that correlation amounted to causation, we controlled for numerous other potential causes and reached the conclusion that the inefficiencies were very likely to have stemmed from the use of management consultants.
In our latest research, just published in the journal Public Administration, we show that the heavy spending continues. After a short dip in NHS expenditure, over £300 million was estimated to have been spent in 2018-19 on hiring external consultants by NHS providers and commissioners as a whole. There are over 100 consultancies in the NHS’s “framework” list of those that can be chosen for specific contracts, and it includes most of the leading names in the industry.
Our paper explores why using consultants can generate inefficiencies. We show that a key predictor of consultancy expenditure within the NHS is previous hiring: high levels of use of consulting services in the past are linked to greater use in the future, despite no efficiency gains.
This suggests that demand rises even when the use of consultants reduces efficiency. Perhaps more alarming, when the effects of reforms such as outsourcing and private financing of hospital buildings were compared, they were found to have worse efficiency outcomes when carried out with consultants’ advice.
In some hospital trusts, consultants did have a small positive impact on efficiency, but it was only a minority of cases. It is also important to note that in general, poor efficiency did not lead NHS managers to hire consultants to turn things around. Rather, the opposite was true – using consultants generated the inefficiency. And besides efficiency, we found no evidence of other improvements associated with hiring consultants, such as raising the quality of the service.
Finally, trusts were not continually hiring consultants to make up for a shortage of managers. Surprisingly, perhaps, the biggest users were those trusts that employed relatively more managers.
What can be done?
These findings are important as they do not rely on one-off cases of good or poor consultancy or client practice, but show the effects across a large number of trusts over years. They have some significant implications.
Clients and the authorities that oversee them should monitor the effects of consultancy more closely and/or limit repeated hiring of consultants. Consultancy is probably most useful for one-off client issues. This is contrary to the popular view that more open-ended contracts based on personal relationships of trust are likely to deliver better results.
The public sector should develop more internal consultancy units. Many actually already exist in the NHS and other public sector organisations, but are often hidden from view or considered less prestigious. Indeed, a “Crown Consultancy Service” has been discussed for government departments after concerns about the excessive use of external consultants during the COVID-19 pandemic.
Consulting firms should place less emphasis on rewarding and promoting consultants on sales performance or repeat business. As recent research from the University of Oxford has argued in relation to auditing, which is in a related category, firms should encourage a “culture of challenging clients” or at least not acting as mere “servants of power”.
This might seem unlikely in hugely profitable and ever-expanding global consultancies. There are signs of a better way forward in a handful of consulting firms who promote themselves as socially responsible and transparent, such as the so-called “B Corps” organisations, although it is too early to tell how different they are from mainstream firms. Certainly, some NHS clients prefer smaller firms with ex-NHS staff on board, since they often share values and objectives.
While it seems unlikely that NHS clients knowingly bring inefficiencies in through consultancy use, the precise reasons for hiring consultants remain unclear. It could be linked to the high status of many consulting firms, fuelled by their promotional activities and close relationships with potential clients.
More concretely, there is the appeal of having new and instant advisers available who will promise efficiency and rarely challenge their benefactors. Whatever the case, the clear message from our research is that the NHS continues to pay the price for relying so heavily on this industry.
In response to the claims made in this article, Tamzen Isacsson, chief executive of the Management Consultancies Association (MCA), said:
Consultants play a vital role in the NHS and are valued by public sector leaders for the transformational impact, innovation and increased efficiency they bring. This study has a flawed methodology and we do not support the use of crude national statistics, the results or conclusions. The study, as the authors themselves admit, does not focus on the improvements in the quality of NHS services that management consultancies can help to deliver and no clients were interviewed as part of the research.
Furthermore, the use of consultants by more challenged trusts could relate to the need for consultancy advice, not causation - more financially challenged trusts are likely to look to expert external advice to drive improvement and efficiencies.
Our MCA member firms have highly stringent governance procedures which ensure staff working on public sector projects meet the highest standards in ethics and are held to account to ensure the public interest is being served. All our members also sign up to our Consulting Excellence principles which commit them to upholding the highest standards of client services, transparency and value.