A Perfect Storm: Growth in Public Sector Consulting

Cash strapped governments seek counsel in these tempestuous times

THE United States government has utilised management consultants for the past fifty years, beginning when McKinsey organised the National Aeronautics and Space Administration (NASA) in 1958. The number of consultants hired for public sector projects has been steadily increasing ever since, spiking to new heights over the past few years in response to the tumultuous state of public sector finances. Top management consulting firms including Bain & Company and Boston Consulting Group have been marketing themselves to state and municipal governments as the solution to stringent austerity requirements. When approaching government clients in the United States, BCG strives to create a “lean” model: strategies focusing on contracting out nonessential government services and curtailing union power to increase flexibility.

The trend towards the prevalence of management consulting in the public sector most recently has been seen in the city of Detroit, Michigan. The emergency financial manager, hired by the state as a final attempt to avoid bankruptcy, has agreed to spend over $14 million this year on a range of financial and legal professional services. A city wrought by a failing auto-industry has been steadily losing its affluent tax base for decades, culminating now in a massive budget deficit and rapidly maturing long-term liabilities. A complete restructuring is needed to remedy the problems resulting from years of corruption and inefficiency. The three-consulting firm team assembled by Kevin Orr, the bankruptcy lawyer appointed as the city’s emergency financial manager, looks set to gain significant business from Detroit’s public sector restructuring.

Management consulting firms have worked successfully with municipal governments across the United States, particularly in the public education sector. BCG collaborated with the city of Philadelphia to completely revitalise their struggling public school system and develop private charter schools. Consultants in Colorado have captured a significant percentage of federal funds flowing into the state for education management, approximately 36% or $10 billion.

The ability of management consulting firms to successfully serve both private and public sector clients has led the industry to continued success, and further growth looks set to occur. Government organisations continue to seek out management consulting firms with the knowledge and skills necessary to work through the bureaucratic complexity of government organisations. At the same time, firms are seizing the opportunity to have a significant positive impact on the lives of millions of fellow citizens.