One of the biggest errors made by the normally efficient private sector is their use of the big consulting companies and investment banks for mergers and strategic advice. It is common knowledge that most big mergers seldom bring in the promised cost savings, and there are plenty of horror stories about the fallout from these mergers, and from failed policies.
Even though these are well-documented in academic studies and in business students’ case studies, senior managers and boards continue to employ the world’s biggest banks and consulting firms as advisors. One must wonder why this practice continues especially when they end up paying fees that reach tens and hundreds of millions of Euros.
The advice is claimed to be independent from the world’s finest advisors. The rationale for this claim being that if you pay a lot, then it must be true! Alternatively one could claim that the senior management and the board just want to have the big names to stop others from claiming that they did not use the best advisors.
There are probably clear exceptions to this rather pessimistic assessment, but it is well known that the big investment banks and consulting firms use dozens of low-cost younger workers (slaves) to copy/paste long documents and prepare endless PowerPoints. These companies have a virtual monopoly on big deals and strategic planning for large companies. Your “independently and objectively prepared” reports or recommendations “from our best minds” may almost certainly be shared in some form or other with your competitors. To think otherwise is a fanciful dream.
The whole role of management and the board is thus diluted to reading expensively prepared strategies rather than thinking hard about what should be done next. Spending money on having the competence internally should be a top priority rather than using outsiders who, without doubt, will be copy/pasting from the last similar case, and the next…
Governments and other large public bodies have also been the major offenders in this area. They have been paying huge sums to these big advisors for policy matters, privatisations, IT advise, selling publicly owned assets, and even for country branding… You can just see the glee on the faces of the private sector suppliers and others who benefit from these contracts, especially when they have cultivated long-term relationships with these same advisors!
The UK government has been one of the biggest users of such advisors over the past 40 years with their Public Private Partnership (PPP) love affair when they have privatised large parts of healthcare, legal services, education, transport infrastructure, mobile networks, utilities, and security. This list is long and very expensive… almost €400 million just for this year so far! Not only have they been prodigious users of these advisors, but many senior civil servants and politicians have found nice jobs in these companies a later date – the revolving door has been spinning fast.
Now, the UK government has suddenly made a turnaround by announcing that it intends to create an internal consultancy body called “Crown Consultancy”. The intention is to employ competent people to man these organisations to replace the private sector consultants. The question one should be asking is why was this not done decades ago?
Finland and Sweden already have plenty of government owned/sponsored/controlled consultancies that employ competent people who advise the government and large cities on strategy and policies.
The Finns have Sitra, VTT, VATT, FCG, Motiva, THS, Senaatti Kiinteistöt, Inspira, and the universities. The Swedes have Energimyndigheten, Vinnova, IVL, the universities, etc… just to mention a small selection.
All of the above, and many more, are actively pursuing best practices in their respective fields and have been doing this for years. Competence within the public sector must be sufficiently strong to balance competence of the private sector – this is the only way to ensure that taxpayers get value for money when cooperating with the private sector and not vice versa.