Management consultants as agents of privatisation: Implications for service quality and organisational efficiency

The global demand for management consulting advice from governments, transnational agencies and public sector organisations has grown exponentially in the past 30 years (Stone & Ladi, 2015). Management consultants have... [ view full abstract ]

The global demand for management consulting advice from governments, transnational agencies and public sector organisations has grown exponentially in the past 30 years (Stone & Ladi, 2015). Management consultants have increasingly been involved in the redesign of public services, advising and facilitating their clients in the reform of structures, governance and service provision (Saint-Martin, 2012). Some commentators argue that the use of consultants can deliver value, helping to mobilise expertise internally unavailable and strengthening policy and implementation capabilities (Hodge & Bowman, 2006; NAO, 2016). An opposite view is that management consultants have worked mainly to drive ideologically motivated NPM reforms (Saint-Martin, 2005), facilitating in the process the adoption of private sector-business practices in public services (Beveridge, 2012).

Given the gap in studies focusing on the role and contribution of consultants in the public sector (Saint-Martin, 2012), we aim to answer two main research questions: Do management consultants act as agents of privatisation? What are the consequences of privatisation-through consulting for the efficiency and effectiveness of public sector organisations? We concentrate on the illustrative case of the acute care hospital sector in the English National Health Service (NHS). In spite of government pledges, the NHS yearly expenditure on management consultants almost doubled from £313 million in 2010 to £640 in 2014 (Oliver, 2016).

The analysis employs annual expenditure on consulting services from the period 2009/10 to 2012/13 as main explanatory variable. Privatisation of healthcare services is measured in two ways. First in relation to the percentage of non-clinical services that had been outsourced to a third-party contractor, essentially the maintenance of the estates and other facilities related activities such as the cleaning of premises. The second indicator of privatisation is related to the Private Finance Initiatives (PFI) contracts subscribed by hospitals, in particular the financial expenditure associated with the adoption of these contracts. In terms of performance outcomes, one is a proxy for organisational efficiency: the Reference Cost Index (RCI), which fundamentally gauges the allocative and process efficiency of each hospital against its peers. The second performance indicator – the proxy for service quality – consists of the overall level of patient experience with the service provided by each organisation. 

Using a mix of panel data approaches, the findings reveal that a higher level of consulting expenditure is  associated with greater contracting out of non-core services and a higher use of private sector funding models in the finance costs generated by PFI contracts. Furthermore, the analysis shows a significant and positive relationship between higher expenditure on consulting services and lower efficiency levels. Robustness tests confirmed the reliability of these findings. However, we did not find any significant association between consulting expenditure and the overall patient experience of the care provided. Finally, through three-way interaction analysis we found that the impact of higher expenditure on consulting services in relation to overall efficiency levels was worsened when cumulated with a greater percentage of non-core services contracted-out and higher variable components in the PFI finance costs. Implications for theory, policy and practice are discussed.