How will the business consultancies cope as public sector gold mine closes?

The government spending review and the cost cutting that follows will leave its mark on the business consultancy industry.

I have blogged at length about how the IT suppliers are reacting to the government’s demands to cut costs. But what about the big consultancies?

Gone are the days of up to 100 consultants being embedded within a public sector organisation, a senior executive at one of the biggest consultancies told me.

He admitted the public sector has been a big for consultancies with hundreds of consultants charging the government day rates overseeing massive projects. But this cannot go on and small groups will replace the large groups and charging will be based on the benefit the customer gets.

The government will actually need consultants more than ever if it is to meet its cost cutting targets while retaining service levels. This is because there needs to be a reengineering of processes. This will include, for example, the introduction of shared services and could mean some offshoring. The government does not have the in-house resources required to push this type of programme through.

The current clampdown on consultancies being used within government might have to be lifted. Currently any expenditure over £20,000 needs ministerial sign off. This limits a lot of consultancy work.

“There was a lot wasted effort in the past but consultants will be needed to make the changes required,” said the executive.

I wrote a blog post in July after a meeting with an IT consultant who said the government is currently benefiting from free consultancy because many suppliers do not want to lose momentum on projects.