Who needs PwC when consultancy work could be done more efficiently in-house?

The Senate inquiry into the PwC scandal has prompted the New South Wales Legislative Council to launch an inquiry into the NSW government’s use of management consulting services.

While the PwC case highlights confidentiality risks and conflicts of interests, the Legislative Council inquiry targets a potential lack of value for money and the negative impact on the capability development of the public service.

As consulting expenditure by government has risen globally, so have questions about the efficiency of such expenditures. DIY consulting - the creation of internal consulting teams within the public service - can contribute to reducing consulting costs while future-proofing public service management.

Debates on the negative impact of consulting for the public service rage in the United States, United Kingdom and Europe. French President Emmanuel Macron faced severe criticism during his presidential campaign^[1] regarding the use of consultants by his government.

Read more: Blacklisting PwC won't stop outsourcing: here are 3 reasons it has become embedded in the Australian public service^[2]

In Australia, the costs from the big four consulting firms (Deloitte, KPMG, PricewaterhouseCoopers and Ernst & Young) increased by more than 400%^[3] in the 2012-22 period, leading to a national controversy.

The federal government pledged to reduce consulting costs dramatically and have begun to do so, with a reduction of around one-third in consulting expenditure^[4] in 2023. But now they have picked the low-hanging fruit, what comes next?

Do we actually need external consultants?

Management consulting firms sell themselves by spruiking that they provide specialised advice on complex issues, and temporary resources to accelerate change resulting in increased performance.

When it comes to backing these claims, there is ample anecdote but very little substantiating data.

There is limited evidence of the positive impact of external management consulting on private companies’ performance^[6]. However, the evidence is almost non-existent in the public service.

More alarmingly, there is emerging evidence of a negative impact. A study conducted over six years^[7] on 125 hospitals in the UK concludes:

If the average annual expenditure on consulting services for a hospital trust is considered (around £1.2 million), then each one would be roughly £10,600 worse off per annum (in addition to the consulting fees paid).

Read more: Blacklisting PwC won't stop outsourcing: here are 3 reasons it has become embedded in the Australian public service^[8]

Research^[9] also shows that decision-makers and consulting firms generally only assess the impact of consulting projects through subjective measures or not at all^[10]. In the absence of hard evidence, this is likely to sanction further use with no real scrutiny.

Adding to this anecdotal assessment is the reality that consultants (particularly the big four) are very good at PR, sales and exploiting the pressure on executive performance to create an addiction whereby consulting begets more consulting.

Their networks become embedded with those of senior public servants, also providing a lucrative future career option for those who leave the public service.

While there is a case for some use of external management consulting, this should be restricted to temporary situations or cases in which a very specific expertise can’t be sourced elsewhere.

So, yes, there is a role for consultants in public service, but certainly a much more modest one.

Doing more internally

Public and private organisations including the World Bank, the Australian Taxation Office, the Australian Department of Health, Telstra and NAB have dedicated departments or internal consulting teams that, on a daily basis, conduct the type of activities that can be outsourced to consultants.

Such teams deliver internally similar services to those that can be expected from management consultants. These include strategic planning, strategic project management, change management and digitisation initiatives.

The new Australian Centre for Evaluation (ACE)^[11], focused on evaluating key government programs across the Federal government, is a good (if small) start. While not all services can be managed internally, internal consulting teams could deliver a much broader range of benefits for federal and state governments.

The first obvious benefit, in light of the PwC scandal, is confidentiality. Public servants don’t have the type of conflict of interest that consultants have. They don’t face the same choices between the interests of their different clients, between their own interests and those of their clients, or between their ethics and their financial objectives.

Read more: PwC scandal shows consultants, like church officials, are best kept out of state affairs^[12]

DIY consulting can also significantly reduce costs. Recent research shows^[13] that the more management teams are involved in internal consulting, the less the consulting costs. There is thus a potential for substituting expensive outsourced work with less costly internal teams. Over time, such savings should offset establishment costs of internal teams.

DIY consulting can also contribute to future proofing the public service. One of the dangers of relying heavily on management consultants is that it results in a “hollowing out”, a process by which the public service progressively loses skills.

Creating internal consulting teams counters this by providing opportunities to rebuild skills and capabilities. This is especially important at a time where AI and automation will potentially endanger jobs or at the very least change the skills needed across the economy, including the public sector.

The recent outcry against management consultants in the public sphere has not been matched by an outpouring of ideas on how to change the situation.

Governments have become so addicted to consultants that cutting them off cold-turkey is not necessarily a workable solution given the skills and knowledge gaps that have been created. DIY consulting may just be a way for the public sector to weather the withdrawal symptoms and finally wean itself off its consultancy dependence.

References

1. ^{^} faced severe criticism during his presidential campaign (www.nytimes.com)
2. ^{^} Blacklisting PwC won't stop outsourcing: here are 3 reasons it has become embedded in the Australian public service (theconversation.com)
3. ^{^} 400% (publicintegrity.org.au)
4. ^{^} reduction of around one-third in consulting expenditure (www.proquest.com)
5. ^{^} www.shutterstock.com (www.shutterstock.com)
6. ^{^} external management consulting on private companies’ performance (www.emerald.com)
7. ^{^} study conducted over six years (www.researchgate.net)
8. ^{^} Blacklisting PwC won't stop outsourcing: here are 3 reasons it has become embedded in the Australian public service (theconversation.com)
9. ^{^} Research (onlinelibrary.wiley.com)
10. ^{^} not at all (www.audit.nsw.gov.au)
11. ^{^} Australian Centre for Evaluation (ACE) (ministers.treasury.gov.au)
12. ^{^} PwC scandal shows consultants, like church officials, are best kept out of state affairs (theconversation.com)
13. ^{^} Recent research shows (onlinelibrary.wiley.com)