Dangers of Outsourcing Government Planning to Global Consulting Firms

IN the last week of October 2023, the print media reported that the government of India has hired the Boston Consulting Group (BCG) to help prepare ‘Vision 2047’ for India.

It is a document that will set India’s medium-term goals and priorities for becoming a developed economy in the next quarter of a century. Among other things, it will look at improving governance systems and access to public goods.

BCG is a well-known global consulting firm that, according to its website, claims to partner with leaders in business and society to tackle their most important challenges. BCG is a part of the ‘Big Three’ which includes McKinsey and Bain & Company.

While advising corporates on strategy, management and execution of projects, sometimes in capacities such as information technology (IT) or financial planning is a standard process, advising governments and organisations from civil societies seems to be a stretch.

The history of such advisory services to governments by global consulting firms is riddled with failures, bad advice, influence peddling and collapse of government special skills and knowledge built over the years.

The history of advisory services to governments by global consulting firms is riddled with failures, bad advice, influence peddling and collapse of government special skills and knowledge built over the years.

This article aims to prove that the experience and history of consulting firms and their interventions in countries that have sought their help have been met with unmitigated disasters. It also sets out reasons why involving such firms is detrimental to the country and prejudicial to national interests.

The foremost question is this: Do strategy firms truly produce the best outcomes? Many scholars in business, academia, and journalism have long argued that the real value of consulting is difficult to ascertain and, hence, consulting firms are mainly concerned with creating the impression of value.

How do global strategy firms work?

Global strategy firms first start working in target countries with the branch or country offices of corporates and organisations with whose head offices they have worked.

Having entered the country, they approach government agencies and departments to do work for free. This pro bono work is a future investment.

One, they understand the workings of the government, which makes it difficult to stay outside, and two, they build contact with senior officers.

Senior officers facilitate their entry in the hope that these firms would offer them post-retirement sinecures for the effort they put in to get the firms into the system. Offers are made subtly and in a manner that conveys that an offer is on the table. The officer’s fraternity is, of course, an old boys’ network.

The next step is to indicate that the department’s ability and competence do not match the capability to resolve the issue and that there is a need to infuse new thinking and new blood into the department.

They would then recommend recruiting this new blood and often they would be their own recruitments and on their payroll. They are called ‘associates’.

Once they make their way in, they become a permanent fixture and bill at US dollar market rates. Of course, the government will foot the bill, which is often much higher than what they would be paying cadre officers who continue to be on the government’s payroll with meagre work. Demoralisation sets in and the in-house knowledge built over years is lost.

One may believe that these consulting firms have great techniques and strategies to offer, but the reality is pleasantly surprising. They usually import operating models used in industries that may not necessarily have worked and they have a set of sophisticated systems of collating and distributing information about previous contracts known as ‘project histories’.

Global strategy firms first start working in target countries with the branch or country offices of corporates and organisations with whose head offices they have worked. Having entered the country, they approach government agencies and departments to do work for free. This pro bono work is a future investment.

Their work with previous clients is recorded internally and stored digitally which other consultants can access and then passed off as original work for a new contract.

These ‘project histories’ are recycled when these firms bid for new contracts and projects that they have solutions to existing problems faced by organisations. With the marketing skills available to them and a plethora of PowerPoint presentations, they overwhelm their clients with enough data to never doubt their assessment and solutions. Questioning them comes across as uninitiated and foolish.

These global strategy firms operate on both sides of the street. Having dealt a blow to the government’s in-house capabilities of knowledge and expertise, they suggest out-sourcing these capabilities. While advising the government, word is sent out about possibilities of government out-sourcing. The word, of course, goes out to companies with which the firm deals. The word, yes, you guessed right, does not go out free.

Ultimately, if the project fails, they will then blame the inadequacy of government intervention, lack of spending and unavailability of suitable people to execute. It is never them and their flights of fantasy.

Now let me list some of the major actions suggested by the consultancies that were disastrous to countries which the Big Three have advised.

Once global strategy firms make their way in, they become a permanent fixture and bill at US dollar market rates.Outsourcing 

In the twentieth century, government initiatives led to digitalisation. Government reforms entailed managing and servicing much of their IT infrastructure in-house and there was a gradual shift to outsourcing.

The Netherlands, Japan and Scandinavian countries retained extensive capabilities in-house until these firms recommended outsourcing. Denmark had an excellent IT systems management and development enterprise managed by the government until it was privatised.

Today, these in-house capabilities have been destroyed or lost to these countries. The argument for privatisation was public sector incompetence. Government employment, because of low compensation, does not attract talent, it was said. In the private sector, innovations proliferate, productivity is much higher, etc.

Global strategy firms operate on both sides of the street. Having dealt a blow to the government’s in-house capabilities of knowledge and expertise, they suggest out-sourcing these capabilities.

Value-based reforms aka downsizing

One of the attractive propositions that these firms forward is downsizing to save costs to the government in the name of ‘value-based reforms’. With pressure on the governments to reduce fiscal deficits, such a recommendation by a well-known strategy firm is a good excuse. Downsizing gravely damages the learning capacity of an organisation.

Another proposition is deskilling— the loss of skill and knowledge acquired over the years. It harms the learning capacity and such downsizing has led to capability losses in the British National Health Service, the Swedish public hospital Nya Karolinska Solna (NKS) and Puerto Rico.

Instead of cost-cutting, as envisaged by the firms, these enterprises have become money-leaking institutes. The Swedes call NKS, which once provided the best medical facility at cheaper rates, the “most expensive hospital in the world”. Cost-cutting is the main component of value-based reforms which is achieved by reducing salaries and wages of those at the lower end of the hierarchy with the least bargaining power.

In the US, downsizing is popular, but the costs avoided by retrenching workers are a burden on the federal government which has to foot the social security bill over time.

Potential conflict of interest and national security

Contracting strategy firms to advise governments entails a potential conflict of interest. As consultancies work with governments, systemic conflicts of interest arise because consultancies want to secure future contracts from clients in the private sector.

The private sector remains a far bigger market than government business. Having a seat at the table of economic decision-making in government is a potential source of influence and information for future clients whom these firms advise.

Further, the consulting firms consist of people from different countries. The knowledge pool that they keep in the ‘depository’ for use by associates for other projects is a source of concern. Non-disclosure agreements cannot stem the leak.

Danger to democracy

The consulting industry is often at odds with democratic rules that exist to protect the public. The opacity of the consulting industry is nothing new. The influence these consultancies have in government decision-making happens without public knowledge, which lacks transparency. The effects of the policies of consulting companies in Angola and Cote d’Ivoire are a case in point.

Contracting strategy firms to advise governments entails a potential conflict of interest. As consultancies work with governments, systemic conflicts of interest arise because consultancies want to secure future contracts from clients in the private sector.

Conclusion

The consulting industry has benefited greatly from government consulting projects. The huge rents accrued match neither the value of its overall contribution nor the distribution of the risks.

The consulting companies prevent the government from evolving the capabilities needed to transform economies for the common good.

Consulting firms have captured public sector organisations, losing out not only on capabilities but also on a sense of public purpose and direction.

Consultants are often appointed by governments to avoid blame for failures. However, the financial costs for failures remain the responsibility of the government.

Author’s note: I have drawn liberally from The Big Con by Mariana Mazzucato and Rosie Collington; and When McKinsey Comes to Town by Walt Bogdanich And Michael Forsythe. I have not been able to give them credit at specific places where I have drawn from their writing. Their work, wherever mentioned either paraphrased or quoted verbatim, is acknowledged.