This section of Discover Society is provided in collaboration with the journal, Policy & Politics. It is curated by Sarah Brown.
Few topics have provoked as much debate and controversy as the ‘stubborn’ reliance on external management consultants by politicians, civil servants, and public sector managers. In the English healthcare sector (National Health Service (NHS)), despite various government pledges to make cuts, annual spending on management consultancy more than doubled from £313 million in 2010 to £640 million in 2014, and it remains consistently high. In principle, consulting use offers different potential benefits, with the promise of increased efficiency at the heart of these benefits (National Audit Office (NAO), 2006). However, according to our recent study, published in Policy & Politics, the use of management consultancy is linked to increased inefficiency.
A starting question in this line of research concentrates on why public sector (or indeed any) organisations use management consultants. According to a recent review by the main industry body in the UK, the Management Consultancies Association (MCA), the answer is simple: the public sector faces an ‘ongoing need to modernise, digitise, meet ever more exacting service demands, while simultaneously shrinking in spending and human resources’ (MCA, 2017). Management consultants, it is argued, are a more cost-effective way of providing advice than a full time, internal management capability. Rather unsurprisingly, the MCA (2010) goes as far as suggesting that for every £1 spent on consulting fees in general, clients can expect £6 in return.
Nevertheless, such bold claims of hefty returns are widely disputed. The rising cost of management consultants, high profile failures (such as the NHS IT project) and an apparent lack of accountability are topics that receive frequent media attention. They have also rightly become a growing source of governmental concern. Consultancy firms have been criticised for their practices of gaining influence and fuelling unnecessary demand through sophisticated selling techniques and back stage deal-making with politicians and managers (so called ‘revolving doors’ of politicians and civil servants into the private sector). A recent example is the development of ‘Sustainability and Transformation Partnerships’ in the English NHS, which are said to have ‘created an industry for management consultants’. This view has led to growing cynicism about the value that management consultants deliver. According to Janet Davies, chief executive of the Royal College of Nursing, ‘it is very hard to see how the Government can justify spending millions on management consultants, some of whom advise on cutting nursing staff to save money’. Even Lord Carter, recently charged with reviewing efficiency in the NHS, admits that he has ‘a bugbear with employing management consultants to solve problems’ (Lintern, 2017).
To date, it has been hard to evaluate these competing claims about management consultants. According to David Oliver (2016), most NHS organisations have been either unable or, for political reasons, unwilling to engage in formal evaluation, resulting in an absence of ‘rigorous, peer reviewable, transparent data’. In this regard, our study breaks new ground. Unlike previous research on consulting services, which has relied mainly on subjective assessments by clients, we focused on an objective measure of efficiency: the Reference Cost Index (RCI), which records the average unit cost to the NHS of providing diagnosis and treatment services to patients. In this way, a hospital trust that operates below the RCI average is more efficient than one that operates above it.
To estimate consulting use, we collected data on ‘consulting services’ expenditure from the Annual Reports of acute care hospital trusts in England for four years (2009/10 to 2012/13). Over the four years, the 120 hospital trusts included in the sample had a cumulative cost of hiring management consultants of almost £600 million. Average annual expenditure on consultants stood at £1.2 million per annum per trust, varying from zero to £5.6 million. An alternative measure of efficiency was also employed to further confirm the robustness of the analysis.
Following a series of longitudinal tests based on pooled time series regression analysis, we found a significant and positive relationship between higher expenditure on consulting services and lower efficiency (or higher inefficiency). The analysis also excluded the possibility that underperforming trusts would tend to spend more on management consultants to achieve improvements. It additionally ruled out that inefficiency was determined by historical shortcomings in performance rather consulting interventions. What these findings reveal is, therefore, that management consultants are not only failing to improve efficiency in hospital trusts, but, in most cases, are making the situation worse.
As one might expect, there was some variation between trusts. A third of those that spent the most on management consultants (the top 25% in spending terms) achieved modest efficiency improvements. However, the impact on the population of trusts overall was negative. In economic terms, this translated into a small average annual loss of £10,600 per annum for each hospital trust, in addition to the fees already paid for these services. Of course, it could be that consultancy use was bringing improved service quality, if not efficiency. If so, the costs might be justified for clients. However, further tests, focusing on performance outcomes such as overall patient experience, suggested that this was not the case.
Potentially these findings have important implications for policy and practice in the NHS and more widely for the public sector in general. While expenditure on management consultants has grown rapidly over the past decade, the value of this advice remains open to question. Thus, the results lend support to some critical voices and to calls by some regulatory bodies, such as the National Audit Office, for the NHS (and any other public sector organisation) to become more circumspect in its use of management consultants. Additionally, they raise questions about the opportunity costs associated with the £1.2 million per annum (on average) that each hospital trust is spending on consulting advice. A rough calculation suggests that this money could buy, on average, an additional 20 more managers, or 10 consultant doctors or 35 senior nurses for each trust.
Of course, some caveats need to be taken into account when drawing lessons from our research. The overall negative finding does not rule out the possibility that, under some circumstances, the advice of management consultants can be useful. Indeed, this was sometimes the case. Nor should we ignore the fact that, often, a key rationale for using consultants is pragmatic or political, a way of helping managers and politicians to justify policy decisions by seeking external validation from a third party. A related point is that, from the available data, it is not possible to explain exactly why management consultants are having such a negative impact on efficiency. It may be due to their lack of understanding of healthcare settings or mis-selling of standardised services that may duplicate existing work or cause unnecessary disruption.
However, some responsibility for the inefficiency of consulting projects also sits with politicians and NHS managers, including their procurement and human resource planning practices, which can lead to sub-optimal deployment of management consultants, failures in monitoring or ignoring alternatives from within the NHS. According to a recent study by Wye et al., (2015), the contribution that management consultants make also depends heavily on willingness of clients to develop ‘knowledge exchange strategies’ that facilitate learning.
These notes of caution suggest a need for more research on different types of consulting project with a focus on explaining outcomes, positive and negative. However, the study represents an important landmark in bringing some objectivity to a longstanding debate. Hopefully, it will stimulate a more evidence-informed policy discussion about whether and how management consulting advice is used in both the NHS and in public services more widely.
Ian Kirkpatrick is the Monash Warwick Professor of Healthcare Improvement and Implementation Science (Organisational Studies) at Warwick Business School. Andrew Sturdy is Professor in the School of Economics, Finance and Management at the University of Bristol. research interests focuses mainly on issues of power and identity in the production and use of management ideas, especially in relation to management consultancy and organisational change. Gianluca Veronesi is Professor in the School of Economics, Finance and Management at the University of Bristol. His research focuses on public sector management, predominantly in the healthcare sector.