Consultants gather for a ‘feast’
Consulting firms can expect to do handsomely out of yet another wave of public sector restructuring, but they claim the size of their invoices doesn’t tell the whole story.
Veteran company director Rob Campbell says ‘‘they’ll be preparing to feast’’ when I ask him about this new wave of restructures the Government have got coming up.
When he says ‘‘they’’ he doesn’t mean the Government, but firms like EY, Deloitte, KPMG and PwC whose names pop up on reports and consulting contracts whenever the word ‘‘restructure’’ is floated by a government minister.
‘‘When you see a ‘working party’ or ‘commission’ there will surely be management consultants or professional service firms busily writing their next contract and issuing invoices,’’ Campbell says.
Right now we’re going through a major wave of such restructures, including a high-profile restructure of the polytechnics into one national institution, a nationwide restructure of health, and an amalgamation of water authorities. Further down the line a potential amalgamation of local councils looks likely too.
Victoria University school of government lecturer Flavia de Mattos Donadelli says it is part of a cycle we’ve been going through for 28 years where we move between centralising and decentralising public institutions.
She is looking at the ebb and flow of these cycles in the health sector as part of her academic research and says movements between centralising and decentralising health have been pursued by parties on both ends of the political spectrum with no clear ideological tendency towards one or the other.
The main reason seems to be that, while it takes about two years for restructures to bed in and efficiency gains to be realised, once it is done people soon start thinking about restructuring things in the opposite direction.
‘‘The reasons can be many, but usually all administrative choices generate challenges and unintended consequences that make the opposite strategy more appealing,’’ Donadelli says.
‘‘This is natural in public administration and is what the literature calls ‘disappointment effect’.’’
She hypothesises we tend to restructure our public institutions more frequently than other countries for two reasons.
The first are our highly centralised decisionmaking institutions. We have a unicameral system, which means no pesky second house to pass legislation through. This makes it much easier to restructure institutions when we are disappointed in the results we get from them.
Her second hypothesis is New Zealand just has a culture of reform which perceives change as inherently positive.
‘‘There are political incentives for governments to leave a ‘legacy’.’’
Kathy Spencer spent more than 20 years in the health sector during a wave of restructures and says they can be disruptive. The restructures she experienced involved people spending up to two years poring over organisational charts.
Afterwards, even more time was spent helping people within the new organisational structure form relationships to get the whole organisation flowing smoothly.
The main restructure she talks about was the move to a central Health Funding Authority in 1997 and its subsequent replacement by decentralised District Health Boards.
‘‘When we had the Health Funding Authority I was working for Bill English at the time, and he was minister of health, and it was just a very dysfunctional relationship between the ministry and the Health Funding Authority.
‘‘It only lasted a couple of years and a new Government came in and swept it away.
‘‘So often the new structure doesn’t even get bedded in before it is dismantled.’’
They can be costly too, even before they get started. Newsroom revealed the health reforms were being driven out of a specialised unit in the Department of Prime Minister and Cabinet, and a whole set of information was released about the amount of money spent on external contractors and consultants between September and the end of February by the unit.
The bulk of this spend included $1.9 million in fees to EY along with $13,786 to the New Zealand Institute of Economic Research, $25,192 to economics consultancy Sapere, and $70,371 to Senate Communications.
The Health and Disability Transition Unit consists of 37 staff including 15 specialist contractors from EY, two specialist consultants from Sapere and one from New Zealand Institute of Economic Research.
Phil Guerin of the Institute of Management Consultants says the fees charged by management consulting firms can often seem large, but involve techniques and models those organisations have often spent a lot of money researching and developing.
He says their fees are often a combination of the real cost of the resources they use, like staff time, and a built-in return on the methods they have developed to make things like restructures happen.
‘‘Someone might look at a consultant’s rate and say that’s x thousand dollars per day and that seems like a huge amount of money.
‘‘But what you’re actually buying is access to the databases and the tools and methodologies, and the experience that firm has.’’
He pitches it as a way of outsourcing the risk of things like restructures.
‘‘You manage risks by getting people who are experts in it.
‘‘So if you’ve got an oil well that’s on fire you hire someone who is a specialist in putting out fires. Same thing if you have got a major change that you want to initiate and you go and find someone who has got experience in managing major change.’’
Campbell seems a little sceptical about the unique models wielded by these firms: ‘‘They tend to define and analyse problems in a manner which can only miraculously be resolved by themselves.’’
He says in recent decades New Zealand’s model of public service management, based on the old British civil service-style tradition, has degraded and been replaced by a more commercial business model.
Some of this was because those older practices were outdated, but another part of it stemmed from a belief private sector-style business practices were inherently superior.
‘‘The management consulting and professional services firms have reinforced this and provided the ‘solutions’, in other words, themselves.’’
Massey University senior lecturer Andrew Cardow questions why private firms are involved
‘‘Why are we hiring consultants to do things that the public service should be able to do itself?’’
Andrew Cardow Massey University senior lecturer
in restructures of public sector organisations at all.
‘‘Why are we hiring consultants to do things that the public service should be able to do itself?
‘‘We have a so-called consultancy company that is paid for by the state called the State Services Commission [now called the Public Service Commission]. Why aren’t they doing it? Why are we needing to continuously employ private sector?’’
Campbell was involved in a consulting firm several decades ago as a director of Strategos Consulting, alongside ex-National Party minister Derek Quigley. They took on reviews of justice, defence, agriculture, and other departments.
He says since then the number of consulting firms involved in this kind of work has only increased. They are now not just involved in external reviews but strategy and implementation.
The practice of contracting out to them has itself led to a ‘‘hollowing out’’ of skills in the public sector, skills and expertise which are now no longer available to ministers, leads to lower-quality advice being given to them.
Campbell is not sure the practice of hiring these consulting firms stacks up financially any more given how much it ends up costing in terms of charge-out rates and the cost to the department of supervising them.
He says government departments would often be better off simply hiring experts from industry when needed and adding them into public sector project teams.
Victoria University school of management adjunct research fellow Richard Norman says that over time governments have lost the staff who used to give them a long-term view, largely because they had moved away from the old ‘‘civil service’’ model where there were a core of people in government departments who were effectively responsible for looking beyond the three-year electoral cycle.
The move to a consulting model had been part of an embrace of a more competitive private sector model and a belief the private sector did things better, so the public sector would be better to outsource to them.
‘‘It probably worked for about five or six, seven years, and then, as private sectors are wont to do, they combine. So they reduce the competition,’’ he says.
‘‘They look for well-performing public servants. Pay them more, and pay them to go and contract back to government.
‘‘The capability of government as a researcher and analyst and activist has been seriously diminished by that model.’’
Guerin says the first stage of any major restructure is the creation of a working group involving senior public servants and experts from the private sector, including consultants.
Shortly after that they’ll form an establishment group and hire one of the big four consulting firms with an office in New Zealand: Deloitte, EY, KPMG, or PwC.
‘‘What they’ll do is they’ll get them to design a strategic approach which will generally include a principles-based approach, a strategy, an operating model, and then various structures, and then they’ll look at the system, process and the people side of it at quite a high level.’’
He says this kind of work requires the use of big teams, templates and methodologies, which can only really be provided by large consulting firms.
A principles-based approach might involve work establishing the major driving forces behind a change or restructure.
These principles are a set of statements which everyone can agree to.
Guerin gives the example of the establishment of the district health boards. The principle behind that restructure was local democracy, while with a restructure in an area like water it might be that 90 per cent of our rivers should be swimmable.
Firms then work through what is needed to enact these principles lower down the organisation. The further down the chain you go the more detail is required. So you move from high-level statements to more detailed policies and procedures.
Which is why there is still a lot of public sector involvement and manpower involved even with the involvement of these consulting firms. They are crucial to helping a lot of these things happen further down the organisational food chain.
Guerin also challenges some of the complaints that are often laid at the feet of these firms around issues such as cost.
Yes, they can cost a lot, but the cost is for a defined period of time, and they are often not the same kinds of people government departments need for their day-to-day operations.
If the Government were paying for these specialised consultants to stay on staff full-time twiddling their thumbs they might very well end up paying more for them.
There is another reason you hire external consultants for these restructures rather than going in-house – the need to have an outside voice not tied to the current organisation and how things are done right now.
However, sometimes departments will call in external consultants for the opposite reason. Better to have an external consultant who you can give instructions to rather than a public service commission which you can’t control.
Guerin says he understands the public’s need to hold consulting firms responsible for the results they deliver with public money, and says there should be measurable objectives their performance can be judged on.
‘‘These are major, major initiatives that really do matter. The Government is trying to improve some sectors of society and it is good to have a look at what they are doing and ask some questions about it.’’