1. Introduction
Management Consultancy (MC) organizations, with their diverse roles, provide professional advice to develop specific features and functions of the organization or its overall management and operations growth. Steiner and Reichmuth (2015) offer a comprehensive definition of management consultants specialized in the public sector, describing them as: “economical and social experts as well as scientists, who deliver a mandated, ad-hoc and paid consulting service to the administration or political leaders with a focus on processes or structures of public administration (Poonsiri, 2017).”
According to O’Mahoney (2010), consultants are viewed in different ways: as political agents who shape agendas, fashionistas who create management trends, missionaries for capitalism who impose neo-liberalism on developing countries, and fraudsters who trick managers into spending money on ineffective advice. Jung and Kieser (2012) suggest that the management concept needs to be more specific and usually gets vaguer during the discourse as different consultancies develop variants and other actors contribute interpretations.
Canato and Giangreco (2011) posit that consultants appear to play four prominent roles in innovation: information sources, standard setters, knowledge brokers, and knowledge integrators. In general, MC companies possess specific knowledge and know-how and apply them to fulfill the goals established by the organization. Rather than focusing on a single firm’s specific activities or search paths, they also have been exposed to general trends in the industry. This level of expertise allows consultants to act as counselors and futurists, especially for firms that are new to the market or lack a specific form of expertise.
Upon delving into the consulting literature, we investigate the compelling reasons why the public sector requires management consultancy, the influence of MC companies in the public sector, consultants’ activities in the public sector, their impact on public organizations, and how they and their activities are perceived. After that, we look at the research results focusing on the effects of management consultations on organizational efficiency, subsequent decline (“hollowing out”) of management functions, and the research comparing the impact of operations management consultancy in the public and private sectors.
The paper is structured as follows: The Methodology section details the research design, data collection methods, and analytical approaches used in the study. The MC in the Public Sector section explores the need for external consultants, their influence on policy formulation, and the complex relationship between managers and consultants. The Impact on Organizational Culture and Leadership section examines the effects of MC on organizational dynamics. The Effectiveness of Consulting Engagements section analyzes conditions under which consulting leads to positive outcomes. The Cost-Benefit Analysis and Over-Reliance on External Consultants section evaluates the financial implications and risks of dependency on consultants. The Managerial Perceptions and Utilization section discusses how public sector managers view and utilize MC services. Finally, the Conclusion and Prerequisites for Future Studies section summarizes key findings and suggests areas for future research.
2. Methodology
The study employs a mixed-methods approach, combining both qualitative and quantitative data to provide a comprehensive analysis of the subject. The paper includes descriptive and exploratory components. The descriptive aspect outlines the current state of MC in the public sector, detailing the various roles and activities of management consultants. The exploratory component investigates the deeper implications of these roles, particularly in terms of organizational efficiency, culture, and leadership within public sector organizations.
A comprehensive literature review was conducted, involving an extensive search of academic databases such as JSTOR, PubMed, and Google Scholar, with keywords including “Management Consultancy,” “Public Sector Efficiency,” “Governance Evaluation,” “Stakeholder Dynamics,” “External Expertise,” and “Consultant-Client Relationship.” The review spanned publications from 2000 to 2023, ensuring the inclusion of both historical and contemporary perspectives.
In addition, the paper includes three in-depth case studies were conducted on specific public sector organizations that have extensively used management consultancy services. These case studies provided detailed accounts of the consultancy engagements, including objectives, processes, outcomes, and challenges encountered. This mixed-methods approach allows for a thorough and multifaceted exploration of the role and impact of Management Consultancy in the public sector, ensuring that the findings are robust, reliable, and applicable to real-world contexts.
3. MC in the Public Sector
When the benefits of acquiring external knowledge outweigh the costs of producing it internally, it makes sense to consult. Public administrations require policy knowledge, assessment of stakeholder dynamics, and evaluation of governance systems provided by consultancy companies (Seabrooke & Sending, 2022). Management consultants have become increasingly visible and influential in policy formulation, implementation, and public services restructuring (Kirkpatrick et al., 2019). Public organizations have increasingly sought management consultancies to support their efforts, as they rarely have the resources or skills to implement such programs themselves (Radnor & O’Mahoney, 2013). The demand for consulting advice in the public sector can sometimes be mandated by regulators, politicians, or even NGOs (Kirkpatrick et al., 2023). Consultancies often serve to make legitimate decisions and changes to stakeholders (Kirkpatrick et al., 2019). Kirkpatrick et al. (2023) claim that, to date, no systematic research has shown a link between consulting use and the development of management functions across broader populations of public sector organizations.
Pollitt and Bouckaert (2011) and Saint-Martin (1998) have cited the significant contribution of management consultants in formulating and implementing policies for public management reform across the globe. McKinsey and Company, an American consulting firm, was contracted by the Bank of England in 1968 for advice on its restructuring, following similar moves by other public bodies such as the Post Office, the British Railways Board, and the British Broadcasting Corporation (McKenna, 2006). Since then, the influence of consultancy firms on the public sector has grown due to policies related to privatization, central government activities’ “agencification,” and IT systems development (Kirkpatrick et al., 2019: p. 79).
It is debated whether using consultants is a good idea or not. On one hand, it can bring in expertise that is not available within an organization. It can strengthen policy and implementation capabilities, and ultimately lead to better outcomes, such as improved efficiency and service quality. Advocates of consulting claim that it potentially benefits clients through a combination of people (access to specialist skills), process (knowledge on how to approach a task), and perspective (offering an independent, expert, or innovative view) (Kirkpatrick et al., 2019: p. 80).
However, the emergence of consultancy in the public sector predates the arrival of new public management (NPM) (Poonsiri, 2017), management consultants have primarily been used to push ideologically motivated NPM reforms, particularly privatization. Privatization becomes the key to effective government, reducing the size of the public sector, shifting responsibilities to the private sector (Nguyen, 2019), and establishing more attractive alternatives for the private sector (Salamon, 2011). Along with outsourcing, privatization, and public-private partnerships, the use of consultants is one of the methods by which the private sector has entered into new governance structures (Beveridge, 2012), a new approach to problem-solving for the era of “third-party government” (Salamon, 2011: p. 1623). Salamon (2011) claims that “new governance” departs public organizations’ focus to an external network of actors on which they increasingly depend. Such networks can bring significant challenges along with advantages. This dichotomy draws on two other bodies of theory: “principal-agent theory” and “network theory”. Because the agents (consultancies) have more information than their principals (public organizations) about what they are doing with their discretion, therefore, have significant opportunities to “shirk” their duties, which per se is the basis the principals to the “moral hazard” for relying on agents whose competence and knowledge the principal cannot fully know. What “network theory” adds to this relationship is that principals may have difficulties getting their way even when the agents share their primary roles.
Consultants are viewed as “manipulators who are seeking to influence policymakers to make more money”, as they take advantage of “revolving door” networks and client insecurities to artificially increase demand for their services and the cost of reform (Kirkpatrick et al., 2019: p. 78). According to this view, standardized products are used, and therefore, consultants are unlikely to add significant value. “The increased use of management consultants in the USA is further evidence of the hollowing of the state” is claimed by Momani (2013). As a result of established interdependencies between public agencies and a host of third-party actors, the government gains essential allies. However, it simultaneously loses complete control over the operation of its own programs (Salamon, 2011: p. 1628). Browne (2021) argued that “over-reliance on consultancy contracts in Australia, is a symptom of the hollowing out of the public service”. “Governments have moved to reduce or ‘hollow out’ permanent staff, assuming that external help can be hired on demand” (Kirkpatrick et al., 2023).
Why are consultants required in public organizations? Steiner and Reichmuth (2015) claim that, due to the increasing public pressure to strive for a lean administration, the number of public employees is kept at a minimum. Thus, public organizations require external help for additional projects, such as an internal reorganization exceeding the existing capacity of the staff. Meanwhile, management consultants are a convenient way to circumvent possible hiring stops, as they do not show up on the payroll.
Nevertheless, consultants act as “change agents,” or the “third hand,” for applying policy transformation, and honing management (Seabrooke & Sending, 2022: p. 459). However, the involvement of consultants in public administrations has raised concerns over private agents’ domination of public governance functions. There are two opposing views about the use of management consultants in public services. On one hand, some argue that consultants offer valuable expertise at lower costs, leading to increased effectiveness and efficiency. However, critics argue that using consultants may not result in any improvements, and careless and inefficient use could outweigh the potential cost savings (Kirkpatrick et al., 2019: p. 81). The tendency for consultancies to exercise power in an opaque and anti-democratic way has been called “consultocracy” by Hood and Jackson (1991). Consequently, “short-term, outsourced expert knowledge production is increasingly replacing civil servants’ and politicians’ long-term work.” Ylönen and Kuusela (2018) define consultocracy as a phenomenon in which short-term, outsourced expert knowledge production often increasingly replaces the long-term work of civil servants and even politicians. This results in an increased power of consultants over politics, public governance, and public sector practices. As a result, the increased use of consultants diminishes public agencies’ planning capacity (Seabrooke & Sending, 2022).
Consultancy is required by public agencies sometimes, due to budgetary and hiring limitations in their bureaucracies. In such situations, consultants are hired to perform specific tasks without incurring the costs of hiring permanent civil servants. The decision of whether to “make or buy” is associated with the perceived efficiency of external consultancy, which can offer standardized advice on a larger scale and with a broader scope (Kirkpatrick et al., 2023). In some cases, consultants are viewed as “fire-fighting” agents for public administrations (Craft & Howlett, 2013). In other cases, consultants replicate work done by internal bureaucrats and occupy a “liminal” space. This space is defined by the “permanence of temporary services” (Seabrooke & Sending, 2022: p. 459).
Public servants’ experience of challenges by management consultants is widespread in the media, policy, and academic research (Ylönen & Kuusela, 2018). This challenge is often presented as a hollowing-out process, not in the sense of outsourcing shared services, that dominate the field, but rather in reducing internal management expertise and bringing in external actors (Kirkpatrick et al., 2023).
Consultants are perceived as “intruders” (Menon & Blount, 2003), posing a threat to managers’ ethos, expertise, jobs, and prospects, or simply as being unnecessary. Meanwhile, they are perceived as “servants of power” or “foot soldiers”, offering managers the opportunity to enact their policies and, in an informal political sense, enhance their prospects, status, and control.
Simultaneously, managers could support the use of consulting as a means of introducing new expertise from the commercial sector to enhance the agency’s reputation, legitimacy, and autonomy. Either way, it seems erroneous to assume that the growing use of consultants will necessarily “hollow out” capacity (Kirkpatrick et al., 2023: p. 4).
Seabrooke and Sending (2022) suggest that there is a micro-to-macro relationship that regulates the interactions between consultancies and public administrations towards the focal points. The scholars claim that for interactions between consultancies and public administrations, these focal points are mainly concerned with task-setting around the recognition of ethos, expertise, and status. In general, consultancies’ access to unique knowledge is recognized by public administrations as a status attribute linked to their market position and global reach. There is strong endogeneity between these task-setting foci, as what is seen as a basis for ethos, expertise, and status may change over time. Recognition of expertise is not only linked to the analytical and technical demands of the task but also to perceptions of command over abstract knowledge and capacity from cross-organizational experience. Since the 1940s, consultants have brought business techniques into public administration agencies, leading to controversy over whether they support or undermine the public ethos (McKenna, 2006). Not only are the outcomes of consultancies’ engagement with public administration inefficient, but consultants diminish skill development and ethos of public service, which includes valuing “legality, neutrality, equity, and loyalty” (Galwa & Vogel, 2021: p. 6), that must be carried out by public servants. Expertise can be based on a wide array of more or less specialized knowledge, skills, technology, or tools. Recognition of status is critical in managing uncertainties (Seabrooke & Sending, 2022).
Seabrooke and Sending (2022) posit that the relationship between consultancies and public administrations can significantly impact who controls tasks and how they are justified. Consultancies may either support or undermine the public ethos. The types of expertise that consultancies offer can vary widely, from a theoretical understanding of legal and scientific knowledge to experience gained through working with multiple organizations. Additionally, consultancies can have varying levels of status, ranging from boutiques and specialized to globally recognized brands. These differences in ethos, expertise, and status are crucial to policymaking outcomes and the development, implementation, and management of policies by national and international public administration.
Kirkpatrick et al. (2019) highlight that consulting firms have faced criticism for their tactics of acquiring undue influence and generating unnecessary demand by utilizing sophisticated sales techniques and forming backdoor social relationships with decision-makers. The existence of revolving doors of employment between these firms and government agencies has further raised concerns. Combined with poor procurement practices by some clients, their inability to effectively implement and leverage the advice they receive may exacerbate the risks of costly and needless consulting engagements.
There are also potentially significant implications for policy around governing consulting use and associated costs. This is especially true in light of evidence suggesting that rising expenditures on consultants can have negative consequences for performance or whether consulting advice is perceived by managers either as a threat (lowering its use) or an opportunity (increasing its use) (Kirkpatrick et al., 2023).
The researchers argue that, while managers as a generic function may tend to perceive opportunities from consulting use, this is likely to vary between sub-groups. The core roles of managers, the nature of their specialist expertise, and how far they duplicate or compete with the work of external consultants are the factors for assuming the relationship. The management functions associated with internal consulting activities (technostructure) may perceive greater threats or fewer opportunities from external consultants. The managers who specialize in knowledge development and transfer, are also less likely to be enthusiastic about externally sourced knowledge.
4. MCs’ impact on Public Sector Efficiency
Kirkpatrick et al. (2019) aimed to evaluate the impact of management consulting advice on organizational efficiency within the English National Health Service and conducted a formal study. The study had three unique characteristics. Firstly, the scholars analyzed client (hospital trust) efficiency levels as the primary outcome indicator. Secondly, they used overall expenditure as a proxy for the use of management consultants, the primary explanatory variable. Lastly, they aimed to explore the impact of management consulting on client efficiency over time.
To carry out the study, the scholars collected data from various publicly available sources of information. They analyzed the financial statements of individual hospital trusts, which were published in their annual report and accounts. The results showed that, on average, English National Health Service acute care hospital trusts spent £1.2 million per annum on management consultants between 2009/10 and 2012/13.
Interestingly, the study found that spending on management consulting is not statistically associated with efficiency improvements. In fact, higher levels of spending on management consultants were found to have a statistically negative effect on two separate indicators of efficiency—operational and adjusted costs. Although the financial effects were not significant (£880 of lost efficiency for every £100,000 spent), the implication is that, in aggregate terms and without considering the embedded opportunity costs, expenditure on management consultants seems to have the reverse effect of what is intended by policymakers and users. This finding underscores the need for a more strategic approach to the use of management consulting services in the healthcare sector, with a focus on aligning the consultants’ recommendations with the strategic goals of the organizations.
The study’s key strength was its data and study design, both of which enhanced confidence in the findings. The researchers could account for the large majority of the hospital trust population in England, using two standardized efficiency indicators. However, they were unable to say precisely why spending on management consultants is having negative consequences for efficiency, although it is possible to speculate. As suggested by the fashion-based view by Jung and Kieser (2012), one possibility is that management consultants may push services that are not needed or where the product quality is lacking or inappropriate. Another potential reason could be the lack of alignment between the consultants’ recommendations and the strategic goals of the hospital trusts, leading to inefficiencies in resource allocation and utilization.
5. Understanding of the Relationship between Managers and Consultants and Debates about Hollowing Out
In another study, Kirkpatrick, Sturdy, Reguera-Alvarado, and Veronesi (2023) aimed to explore the relationship between managers and consultants in the public sector and the debates surrounding the notion of hollowing out, which refers to the potential erosion or reduction of management functions. The study investigated this relationship through three main theses:
It found that public sector organizations with a more considerable management function tended to rely more on external consulting advice.
Public sector organizations where technostructure (internal consulting) managers were strongly represented within the management function made lower use of external consulting advice.
A greater use of external consulting advice by public sector organizations did not result in a subsequent decline or “hollowing out” of management functions.
The study specifically analyzed the use of management consulting services in the acute (secondary) care hospital sector of the English National Health Service (NHS), which is publicly owned, funded, and (for the most part) independently managed. The data on NHS organizations’ expenditures, including consulting, was publicly available in their annual report and accounts. Official statistics relating to NHS organizations’ organizational and employment characteristics were sourced from NHS Digital, and a database owned by Wilmington Healthcare Ltd. provided a complete breakdown of NHS managers. This database had information on 30,000 managers in over 100 job functions by job responsibility and organization type.
The study found that managers in the public sector were the primary drivers of consulting services utilization. Organizations where managers had more influence tended to rely more on management consulting services. This finding contradicts the “make or buy” outsourcing accounts and challenges the idea of a substitution effect. Instead, it suggests that managers as a group may be directly interested in increasing the use of consulting services. The following assumption is consistent with broader research that suggests consultancy use is an opportunity to support the interests of client managers, both collectively and individually. The study also underscores the significance of occupational differences within management and how this can lead to variations in consulting services demand. Specifically, it reveals that in public sector organizations where technostructure managers were more prevalent, consulting advice usage was significantly lower. The latter might be partly because of overlapping expertise between this sub-group and external consultants. It is also in line with the assumption that, for some managers, consultants are viewed more as a threat than an opportunity. As a result, an element of substitution is present here, but specialist internal managers are replacing external consultants rather than vice versa.
Finally, the study did not provide any evidence to suggest that increasing consulting expenses harms the employment of managers or the overall size of the management function over time. The argument is that managers, being the primary clients of consulting services, are unlikely to use these services in ways that would systematically undermine their own position, refuting the hollowing-out thesis. This finding has significant implications for public sector management, suggesting that the use of external consulting services can be a strategic tool for managers to enhance their effectiveness and efficiency, rather than a threat to their roles.
6. MC’s Role in the Public Sector Operations Management
The paper authored by Radnor and O’Mahoney (2013) discusses the increasing trend of using management consultancies to implement operations management innovations in the public sector. The study aimed to identify the impact of operations management in the public sector and the impact on the management consultancies involved. The research used rich, qualitative data from six large management consultancies and 48 interviews. The methodology was designed to identify how consultancies have adapted their operations management products and services and why they have done so.
The study’s findings reveal that the unique context of the public sector presents consultants with significant challenges when implementing operations management projects. Public services are often hindered by different cultures, structures, managerial knowledge, and investment patterns. Such constraints have a profound impact on both the projects being implemented and the relationship between consultants and clients.
The research provides the perspective of management consultants who are in a position to compare and contrast their experiences of implementing similar operations management practices across private and public organizations. Two core questions were asked to better understand new trends in operations management: “How do operations management consultancy interventions in the public sector differ from those in the private sector?” and “How does the public sector context influence the development of operations management consulting?”.
Regarding the first question, the findings indicate that although consultants aim to implement the same overarching offering, there are some critical tensions in implementing services in the public sector related to the design, planning control, and improvement of processes. These differences stem from cultural variations related to pace, commitment of leaders, and the ability to track the impact.
Regarding the second question, the paper demonstrates how the differing context of public sector implementations affects “downstream” on both the consultant-client relationship and the development of operations management services within the consultancy. The research suggests that management consultants may have to change the focus of their engagement to take into account not only the operational level but also the network or strategic level. However, due to the political nature of decision-making within public services coupled with the lack of leadership, the challenges of this transition do not make it a lucrative prospect.
The research also indicates that management consultants may need to manage the expectations of both their engagement time and the client’s requirements more clearly. For example, the research strongly indicates that for some engagements, training to develop the clients’ understanding of “basic” operations management concepts was needed explicitly. Management consultants also need to be more sensitive to the public sector context in terms of the policy environment and should influence how benefits are measured and tracked.
In conclusion, the study asserts that the need for operations and process management approaches within public services is vital to addressing the growing demands for efficiency and effectiveness. However, in practice, due to the complexities of power, span of influence, and political leadership, the ability and opportunity for operations and process management to have a real impact may be limited. Suppose the trend of using management consultants to implement operation and process management in public services is set to continue. In that case, the research indicates that management consultancies need to suit better the development, delivery, and management of their products and services.
7. Conclusion and Prerequisites for Future Studies
The primary objective of this paper was to analyze the role and presence of the management consulting industry in the public sector. Through an exploration of industry-specific information, varied definitions, and perceptions of management consultants, we have highlighted the multifaceted impact of management consultancy in public organizations.
Management consultants are often seen as essential change agents, bringing specialized knowledge and expertise, particularly in policy formulation, stakeholder assessment, and governance evaluation. Their influence has significantly grown due to policies related to privatization, central government activities, and IT systems development. While consultants can enhance operational efficiency and effectiveness, concerns persist about the potential over-reliance on external advice and the subsequent “hollowing out” of internal management expertise.
Key findings include the dual nature of MC’s influence: providing valuable expertise and innovation while potentially diminishing internal capacity and increasing dependency. Studies such as those by Kirkpatrick et al. (2019, 2023) reveal that higher spending on consultants does not always correlate with improved efficiency, underscoring the need for strategic alignment between consulting engagements and organizational goals.
The relationship between managers and consultants is complex, with managers often driving the demand for consulting services. This dynamic suggests that consultancy can support managerial interests, both collectively and individually, but also raises questions about the efficacy and long-term impact of external consulting on internal capabilities.
To further understand the nuances of management consultancy in the public sector, I recommend the following areas for future research:
Impact on Organizational Culture and Leadership
Investigate how integrating external knowledge from management consultants affects the commitment, motivation, and inclusion of internal personnel.
Explore the long-term effects of consulting interventions on organizational culture and leadership dynamics.
These aspects are depicted in Figure 1, which illustrates the effect of management consulting interventions on organizational culture and leadership.
Figure 1. Effect of management consulting interventions. Management Consultancy in Public Sector by Samir Novruzov.
Effectiveness of Consulting Engagements
Examine the conditions under which management consulting leads to positive outcomes in public sector organizations.
Identify best practices for aligning consulting recommendations with organizational goals and ensuring successful implementation.
Figure 2 provides an overview of the effects of consulting engagements, highlighting the key factors that contribute to successful outcomes.
Figure 2. Effects of management consulting engagements. Management Consultancy in Public Sector by Samir Novruzov.
Cost-Benefit Analysis and Over-Reliance on External Consultants
Conduct comprehensive cost-benefit analyses to assess the overall impact of management consulting on public sector efficiency and performance.
Evaluate the potential risks of over-reliance on external consultants and develop strategies to mitigate these risks.
As shown in Figure 3, the cost-benefit analysis highlights both the advantages and potential drawbacks of relying on external consultants.
Figure 3. Cost-benefit analysis and over-reliance on external consultants. Management Consultancy in Public Sector by Samir Novruzov.
Managerial Perceptions and Utilization
Study public sector managers’ perceptions of management consultants and how these perceptions influence the utilization of consulting services.
Analyze the role of internal versus external expertise in shaping organizational decision-making and outcomes.
Figure 4 illustrates managerial perceptions and the utilization of consulting services, providing insights into the dynamics between internal and external expertise.
Figure 4. Managerial perceptions and utilization. Management Consultancy in Public Sector by Samir Novruzov.
In conclusion, while management consultancy plays a crucial role in public sector operations, its effectiveness depends on careful integration, strategic alignment, and sensitivity to the unique challenges of public administration. Addressing these considerations through further research and informed practice can help public organizations better harness the potential of management consultancy to drive meaningful and sustainable improvements in governance and service delivery.
8. Limitations
This study has several limitations. First, it relies heavily on existing literature, which may contain biases or gaps, and primarily focuses on Western countries, limiting the generalizability to non-Western contexts. The dynamic nature of public sector management means that findings may quickly become outdated due to rapid changes in public policy and administration.
Some sources may have inherent biases, particularly those commissioned by consultancy firms or government agencies, affecting the objectivity of the findings, and may not fully capture the current state of management consultancy in the public sector.
The complexity of consultant-client relationships is acknowledged but not fully explored, requiring further qualitative research for deeper insights. Additionally, the focus on efficiency and performance may overlook other important aspects such as employee morale, long-term sustainability, and ethical considerations.
Future research should address these limitations by incorporating primary data collection, expanding the geographical and contextual scope, and exploring the evolving dynamics of consultancy practices in public administration to provide a more comprehensive understanding.