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March 23, 2023 - March 10, 2025
Bad governance in both business and the state has over the last half century caused short-termism to overshadow investments needed for progress. These trends have depleted organizations of knowledge, skills and vision.
Public sectors were transformed under the credo of New Public Management—a policy agenda that sought to make governments function more like businesses and diminished faith in the abilities of civil servants. These trends also meant that those working within companies and government organizations became insecure, constantly needing to justify their decisions to others—business executives to their shareholders, and civil servants to an ever skeptical populace and media, which would blame them for any failure or mistake.
There is an entrenched and mutually reinforcing relationship between the consulting industry and today’s inherited governance forms in business and government. It is successful because of the unique structural power that the big consultancies wield through extensive contracts and networks across the economy, and their historic reputation as objective brokers of expertise.
The problem is not the act of consulting or the intentions of consultants, who often hope to effect change through their roles, but the ever expanding consulting industry moves from the sidelines to the center. It feeds off the weaknesses in our economies, hollowing out clients in the process, rather than helping them, which later only creates more opportunities for the rents accrued.
The nature of consulting contracts, limited liability and the business models of big consultancies means that it is their clients’ employees and citizens that most often end up taking the risks of consultancy failure. This difference between the rewards reaped (large) and the actual risks taken (little) makes the rents earned even greater.
The history of modern consulting is, in the end, the history of modern capitalism: every trend has been surfed by the Big Con.
The consulting industry is one group of many actors that have shaped and profited from a market-driven response to the climate crisis, but it is future generations and those living today in the regions most exposed to the climate crisis who will bear the risks of that response failing.
The scale of contracts with the consulting industry—via roles as advisers, legitimators of controversial decisions and outsourcers—weakens our businesses, infantilizes our governments and warps our economies. The cumulative use of big consultancies that operate with extractive business models stunts innovation and capacity development and learning, undermines democratic accountability and obfuscates the consequences of political and corporate actions.
organizations and individuals with genuine knowledge and capacity can be a valuable source of advice, but they should advise and “consult” from the sidelines in a transparent way that brings real knowledge and expertise— rather than be allowed to run the show from the center.
Taylorism treated workers less as human laborers and more as “resources” in the factory. It was the first theory adopted en masse by consultants. But more than that, it was an early case of top-down firm restructuring based on a management consulting idea and it represented a turning point in industrial development.
In any case, it wasn’t primarily the ideas and methods of consultancies that led to the widespread growth of management consulting contracts in the United States of the 1930s. Rather, it was the unexpected consequence of legislation introduced in the wake of the 1929 Great Depression.
the Second World War saw not just increased use of consulting advice, but also the direct employment of consultants into military positions: consultants became a source of military capacity.
No period has ushered in a greater transformation in the nature of consulting than the 1980s. In this decade, the size of the industry and the roles it played in government and business would be forever changed by the introduction of “neoliberalism”—an
it is more accurate to understand neoliberalism as the reconfiguration of state institutions and the redirection of state spending as a means of transferring greater responsibility for producing goods and services to market actors. Neoliberal policies in fact neither led to a significant shrinking of public spending, nor to increased competition in key industries in the long term.
Often the capabilities for managing the delivery of a service in-house would be completely lost after they had been outsourced, and so the costs of re-insourcing were very great. Public sector bodies had little choice but to continue using consultants.
David’s experience reflects broader trends in the 2000s, where it was reported that increasing numbers of corporate managers were encountering consultants.[2] According to him, “Sometimes this was done so that the senior management had someone else to blame if targets weren’t hit.”
often, the decision to contract a consultancy was driven by the belief that the management consultants’ methods for understanding the organization were superior to anything that existed internally.
As often as not, the consultants’ proposals could not be provably shown to “add value”—and sometimes would not be implemented at all. From time to time, the proposals of the management consultants were identified as being completely flawed before they were implemented.
The dominant theory of why consultancies exist in capitalist economies has historically been that they serve a “functional” purpose, enabling other organizations to increase profits or achieve other objectives.
In other words, they are “experts, extras and facilitators”[4] who create value by leveraging expertise and brokering technical or managerial knowledge.[5] In economic terms the corollary would be that consultancies exist because they create “economies of scale” in types of managerial, sectoral or technical knowledge, which others have called “economies of knowledge.”
Many in business, academia and journalism have long argued that “the real value of consulting is very difficult to ascertain and, hence, consulting is concerned mainly with creating an impression of value.”
These tricksters used offers of proprietary information, awe-inspiring technology and linguistic prowess to instill confidence in their promises—similar to the ways critics of the functional view of consulting describe the methods of consultants.
The desire to project competence in the form of qualifications was at the heart of the consulting industry’s highly selective recruitment practices throughout the twentieth century, and was viewed as helping to create an impression of legitimacy around the profession.
people educated at top universities work for the organizations that become the clients of the consulting industry. When a consultancy’s employee is able to reach out to their former classmate for a word about a contract that is out for tender, or just recognizes the name on a bid from their social circles, it can make the process of securing it a whole lot smoother.
consultancies are not contracted merely as knowledge depositories. They are often brought in to advise and deliver tasks that require them to use particular skills and knowledge. Recycling slides using the superficial case-based insights that were likely put together by another consultant is at odds with the promise of expertise.
the analysis conducted by management consultancies and published in their reports and “thought leadership” pieces should not be taken at face value: they are powerful marketing tools for promoting a consultancy as a pioneer in a particular area, and can increase demand for a consultancy’s services by projecting confidence.
Sometimes, the contracting manager harnesses the Big Con “as an instrument to further their own objectives by involving consultants in the micro-political games”[56] of their own organization. In other words, consultants are contracted because doing so can help to legitimate the contracting manager’s decisions or improve their standing within an organization.
Perhaps most importantly, much as the true value of consulting is often very difficult to ascertain, the qualitative and interactive nature of consultants’ relationships with clients can make it challenging for clients to convincingly pinpoint blame when something goes wrong.
There is no higher authority in consulting who can judge definitively who is to blame. This skewed risk-reward relationship is at the heart of the consulting industry’s business model. The rewards reaped—the rents—usually far exceed the financial risks of taking on the contract or the costs of creating an impression of value.
The absence of an incentive to guard against risk because an individual or organization will not be affected by its consequences is known in economics as a “moral hazard.”[18] In other words, consulting has proven to be a very promising vehicle for rent extraction not just because the value of contracts is often high, but because the risks consultancies assume relative to the potential rewards are low.
“Consultant” is not a protected profession and there is no universal accreditation for individuals who use the title. This means that, technically, anyone can set up a business and call themselves a consultant, even if they have no or only limited experience working in the area in which they are trying to sell advice.
as technologies, practices and knowledge in the field change, the firm’s capabilities may not keep pace. Capabilities are always specific, to a degree, and they evolve over time. Expertise has a half-life. The value proposition of firms run by people with extensive, on-the-ground experience may not hold up in the long run.
The use of consultants to develop or deliver a core function—as opposed to drawing on the insights of experts—assumes that capabilities can be conjured up at will,[25] and that knowledge can simply be purchased, as though off the shelf. It assumes learning in the contracting organization is not an incremental and collective process, but a transaction.
In the public sector, owing largely to the long shadow of NPM narratives which did not value experiences derived from long civil service careers, this tacit knowledge is often overlooked as constituting an important resource in learning. The total cumulative knowledge that exists within an organization is often referred to as “institutional memory.”
The consulting industry does not exist on the scale and scope of today merely because it is an effective broker of knowledge. And where consultants do create knowledge, it may not be effectively shared with clients.
Contracting organizations can aim to absorb knowledge from the organizations they contract, but as the research on “absorptive capacity”[35] suggests, this form of learning is unfeasible without core management and coordination capabilities.
Contracting to consultancies can also directly erode existing in-house knowledge and institutional memory:[40] the less an organization does something, the less it knows how to do it. It is a self-fulfilling process. But the hollowing out of capabilities that occurs as a result does not just reduce the capacity of an organization to do something itself in the short term; it can have cumulative effects over the long term as well.
In a healthy democracy, the public sector and its administrative structures are simultaneously what enable elected politicians to realize their mandate, and what prevents these “cronies” from subverting democracy to their own advantage by enforcing agreed-upon rules and obligations. The public sector’s ability to constrain corrupt or anti-democratic choices of politicians must also be understood as a dimension of state capacity.
McKinsey advised pharmaceutical companies to become less like drug developers, and more like financial intermediaries, taking the mantra of maximizing shareholder value to its apotheosis.
The influence of the consulting industry, and the role it plays, is inseparable from the broader political economy and ideas about how value is created. The approach taken by former McKinsey consultants epitomizes the offering of consultancies contracting across the economy: that learning, whether organizational or for drug development, can be bought as though off the shelf, rather than developed over time through cumulative resource and knowledge investment.
The consulting industry is very often put to uses that are at odds with the democratic rules that exist to protect the public. But the ubiquity of management consultants in decision-making and operations across the global economy represents a challenge for democracy for an even simpler reason: most people do not know they are there.
The Big Con is preventing governments and businesses from evolving the capabilities they need to transform our economies for the common good and accelerate the green transition. This is a critical issue for democracy, as well as for innovation—the ability of organizations to respond to the needs and wants of citizens.
The financial pressures that result from budget cuts and austerity programs mean that public sector capacity is often limited. A government official responsible for delivering a new initiative within a short time frame may feel forced to contract an external consultancy that promises value for money and a quick turnaround.
Contracting out is rarely the only option, but where it has become a default response to meeting new needs, alternatives are often met with resistance. Visionary calls to invest internally to build up internal capacity over time are viewed as heretical.
Rebuilding capabilities in public sector organizations must begin with recognizing government as a value creator in the economy—rather than a wasteful and inefficient value extractor at worst, or a market fixer at best.
In a recent policy paper one of us co-authored with the United Nations Development Programme, we found the pandemic revealed “core government functions.”[6] These included: Adapting and learning in the face of incomplete, at times conflicting, information and radical uncertainty; Aligning public services and citizen needs; Governing resilient production systems and capabilities to foster symbiotic public-private collaborations and tapping into citizen innovation; Capacity to govern data and digital infrastructures, including handling the “infodemic” while balancing human rights protection; and
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it is also critical that public sector organizations are empowered to take risks. Consultancies are often used by governments (as well as businesses) seeking to avoid blame for failures.
In practical terms, recognizing the state as a value creator—and a risk taker—requires policymakers and the media to evolve the narratives they use when describing the role of the government in the economy.
Governments are producers, too, and to be innovative requires that they take risks—as every successful entrepreneur would also say about innovative companies in the private sector. Public sector managers and organizations should develop tools that enable them to experiment and take risks in ways that foster learning, such as through “sandboxing”—an approach that supports organizations to test policy programs within a controlled environment and at a relatively small scale.
In existing contracting processes, value is often viewed in transactional terms: capacity or expertise is provided in exchange for money. But when knowledge-sharing agreements are included in the terms of reference with contractors, procurement and other forms of partnership can also be a source of learning.
