Two of the leading technology web sites, silicon.com and its sister site, ZDNet.co.uk, recently reported that spending on consultants by the Home Office had reached £147m in 2006/07 – up from £7.6m when new Labour came to power in 1997. This figure includes spending by the Identity and Passport Service (IPS) – responsible for the soon to be launched ID card – of £30m. The two reports quote Home Office Minister Liam Byrne’s response to criticism of this huge increase. Byrne argued that it was necessary to buy in ‘…specialist knowledge, skill, capacity and technical expertise that would not otherwise be available.’ and that the vast majority was attributed to large outsourcing contracts and IT projects.

Photograph by stevecadman, used under Creative Commons license

The Home Office’s spending on consultants is only a small part of the total amount of public money that flows to the consultancy industry, of course. In its 2006 report Central Government’s use of Consultants, The National Audit Office (NAO) stated that spending hit a high point of £2 billion in 2003/04 – up from £217 million in 1997. The authors of Plundering the Public Sector estimate that around two-thirds of this amount goes on IT systems consultants; a claim borne out by the NAO’s finding that the five consultancy companies with the highest earning from government are all primarily IT focused.

There are understandable reasons why the consultancy industry occupies such a powerful position in government and public services in the UK – particularly in IT. One of the most significant, as Helen Margetts points out in 'E-Government in Britain — A Decade On' (in Parliamentary Affairs), was the 1990s pursuit of ‘…a particularly radical form of IT outsourcing (or “totalsourcing”), in which government agencies retained very little expertise internally.’ The upshot, as Margetts goes on to note, was that by the early 2000s this had created a situation where five IT services and supply companies held 90 percent of the government market in the UK.

However, there's a second dimension to this relationship that lies beyond the often reported scale and scope of operations. This is the rise of what's been called the ‘consultocracy’: the number of senior personnel in government and the civil service who have a consultancy background and/or interests. In fact Liam Byrne will be familiar with this situation as he previously worked for Accenture (formerly Andersen Consulting), as did James Hall, the current Chief Executive of the IPS. There are many other past and present examples I could cite but space prevent this. Suffice to note that this is not a new development. The process started in the late 1960s through the Fulton Committee’s review of the civil service. By the early 1980s the relationship had developed to such an extent that the Management Consultancies Association (MCA) had begun to arrange a regular series of meetings between its representatives and senior civil servants. And by the early 1990s the head of the Prime Minister’s policy unit was a consultant from McKinsey.

There are several ways in which we can examine the significance of this relationship. One relatively straightforward approach is to analyse how many of the bases or sources of organisational and institutional power the industry and its stakeholders and supporters in government can utilise. I’d argue it’s all of the following: formal authority, the use of organizational structure, rules and regulations, the ability to cope with uncertainty, symbolism and the management of meaning, structural factors that define the stage of action and interpersonal alliances, networks, and “informal organisation”. Six further bases relate specifically to control and of these the control of scarce resources, decision processes, knowledge and information, boundaries, and technology are also highly significant.

In short, when both dimensions of the relationship are combined it's doubtful whether any other stakeholder group enjoys such a potentially influential position in central government policy making and implementation, particularly if it's IT related - which is nowadays pretty much everything. This raises a number of significant questions, two of which I’d highlight.

The first stems from comparative research reported in Digital Era Governance, that ‘…the greater the overall power of the IT industry in a country, the lower the performance of government IT systems.’ The question posed, therefore, is whether in countries where we also have to contend with the power and influence of a largely IT-centred consultancy industry  does this create a double wammy - aggravating this situation further, therefore making the development and implementation of best value, effective, government and public sector IT systems even less likely? 

The second relates to a long standing concern of scholars of policy studies and political science, and a good number of ordinary citizens as well: is the credibility, legitimacy and function of the policy process in a democracy undermined when the formulation, implementation and evaluation of public policy is dominated by one set of stakeholders? Furthermore, is this situation compounded where the basis of this relationship is such that transparency and oversight - even by Parliamentary bodies - can be significantly restricted by claiming commercial confidentiality? Call me naive or lacking a grasp of real politic but my reading of the evidence suggests the answer is yes, yes and yes. 

About the author

Ivan Horrocks is a lecturer and member of the Technology Management Group at The Open University. He has written many publications about the relationship between information and communication technologies (ICTs) and government and politics.

In these turbulent times, almost every firm is affected by factors beyond its control. The credit crunch and plummeting consumer confidence are behind a raft of recent reports of job losses and profit warnings. Yet three recent but very different examples show how some firms cope with market turbulence better than others. JJB, the UK chain of sports shops has announced big job cuts whilst General Electric, that exemplar of US business excellence, failed to meet its earnings forecasts. By contrast, Experian, the credit-checking firm, saw sales rise 21% even though its big bank customers pulled in their horns a lot. These differences, and what they can teach the rest of us, can be understood by management research.

The simple explanation is that firms like Experian had more foresight than the others. They read the runes of economic, political, social and other changes to anticipate the market and acted accordingly. Academics call these things the “remote environment”, in contrast to the “near environment” of customers and competitors. But the broader and more practically useful question is how did they do this; how do some firms manage to draw sense from the cacophony of the business environment?

There are three sets of management research ideas that help us to answer this question:

The first is that about how managers “scan” the market. This shows that we all do it differently. For example, some of us are ad hoc, whilst others are systematic. This research also tells us that complex environments need more rigour and process and that management teams need a blend of scanning styles.

The second is about how firms make sense of what they see. This shows that data, information, knowledge and insight are different things and the core skill is converting data into information, then into knowledge and then sieving valuable insight from a mountain of knowledge.

The final idea is about how managers create strategy from insight. This shows that it is a much intuition as analysis and that it often comes in a flash of inspiration. Managers need to gather relevant past lessons and synthesise them into a new vision of the future. To do this, they have to have clear minds and not get lost in the detail.

Put like that, it all seems common sense but, as Voltaire said, common sense is not so common. Many firms think market insight can be made just by throwing enough computing power at enough data. They get obsessed with algorithms and data collection and lose sight of the unique power of human beings to synthesise information from many different sources. Good firms, by contrast, follow some simple rules to avoid this trap, such as combining quantitative and qualitative data and using that data testing their long-held assumptions.

And the practical moral of the story? Don’t be fooled by the patter of the IT salespeople. There are mountains of good, and unbiased, management research about how to make sense of the market, research that helps you to be both forewarned and forearmed.

Further Reading

• Open University Course B201 - Business Organisations and their Environments.
• Strategic Intuition: The Creative Spark in Human Intuition by William Duggan, published by Columbia Business School Publishing,
• Creating Market Insight: How Firms Create Value From Market Understanding. By Brian D Smith & Paul G Raspin from Wiley.
• The Marketer's Stone by Dr Brian Smith, Dr Hugh Wilson and Professor Moira Clark, published in The Marketer, 2006 (article  available free on request)

About the author

Dr Brian D Smith is a Visiting Research Fellow in The Open University’s Marketing and Strategy Research Unit. He is the author of over 100 books and articles and runs PragMedic, a specialist strategy consultancy.