Blair's barmy army

But insiders and IT professionals now agree that it cannot work. If the government pulls the plug now, only about £1.5 billion will have been lost. But will it? Dare it admit that its multi-billion-pound gamble on the power of the consultants has failed?

Meanwhile, despite the billions poured into the NHS, hospital trusts are still ending up in deficit. Teams of consultants are parachuted in and come to only one conclusion: cuts must be made. “Men in smart suits turn up,” says Dr Paul Miller, who was chairman of the (medical) Consultants Committee at the British Medical Association, “and tell doctors and managers what they know already and charge a fortune.”

Over at the Department for Work and Pensions, they took the advice of consultants and cut the number of high-street jobcentres. The idea was that people would go online or phone a call centre. They didn’t: they got violent, turning the remaining centres into “war zones”. More consultants were called in to sort out this problem. They suggested sweets and potted plants. The government now consults consultants about consultants.

“When these consultants come in and tell people they are doing everything wrong,” says Mark Serwotka, general secretary of the 300,000-strong Public and Commercial Services Union, “and they’ve got a licence to do it. It drives people to despair.”

Thanks to a succession of consultant-led disasters – the Child Support Agency, Swanwick air-traffic control, almost everything to do with the NHS but particularly the £12 billion computer, HM Revenue & Customs, the tax-credit system, Ministry of Defence equipment shortages – the almost universal, popular view of management consultants is that they are (a) incompetent, (b) greedy, and (c) ruthlessly willing to exploit the government’s managerial incompetence. They can even, according to some, cost lives. The MoD adopted consultancy theories about stockholding and, as a result, British soldiers found themselves without body armour in Basra. Furthermore, Glass insists, it was the “consultancy culture” that resulted in the privatisation of NHS cleaning contracts that was started by the Tories. This led to dirtier hospitals and some of the highest rates of MRSA, a frequently lethal infection, in the world.

But inside government, the line is that it’s all going very well and consultants are a necessary tool for modernising public administration. The official line on the whistleblower Glass is to cast doubt on his motives. “I’m sure he does very nicely because he’s in consultancy too,” says Fiona Czerniawska, director of the Management Consultancies Association (MCA). These are almost the same words used by departmental spokesmen. In fact, Glass works for a consultancy called the Best Practice Group, which advises clients how to avoid using consultants on anything like their present terms. And the truth is that it is his relentless – and largely unchallenged – critique that has provided devastating evidence supporting public anti-consultant feeling.

“I became a whistleblower because the industry has become sales-driven,” says Glass. “It’s a washing-powder sales operation where they have to think of a new product every year. They’re selling people things they don’t need.”

But what is really going on? Why is the government so enamoured of an industry that its electorate regards with contempt and mistrust and which seems to land it in
one disaster after another? The answer is, in detail, complicated but, in essence, simple. Government has gone mad. But sanity is in sight.

Lord Birt, with his bland, technocratic face and mangled “Birtspeak”, has provided the popular image of the management consultant since he became director-general of the BBC in 1992. He introduced internal market reforms based on ideas from the consultancy McKinsey. He did some good but left behind a smouldering mass of bitterness and a huge bill payable to the consultants. Ignoring what had been an at best ambiguous episode in the BBC’s history, Tony Blair gave Birt a job in Downing Street. His brief was “blue-skies thinking”, which meant he could upset any government department more or less at random. As he was also a part-time consultant with McKinsey, the clash of interest was glaring. But the problem didn’t seem to strike Blair.

What did strike Blair was that Birt was an intelligent man who seemed to have an expertise that the civil service and his own ministers did not. It is this obsession with external expertise that has turned new Labour into a rabbit caught in the consultants’ headlights. Blair’s and Brown’s speeches are littered with buzz words – “transformation”, “reconfiguring”, “delivery” – that simply were not used in that way before the consultants came along. They both think that consultants are the answer to all their problems. As a result, consultants have infiltrated Whitehall on a massive scale. The official figure of government spending on consultants comes from the MCA: £2.2 billion annually. Since the MCA only represents two-thirds of consultancies, the real figure must be nearer £3 billion. This may not seem much, less than a third of the total consultancy spending in the UK of £11 billion. But the point is that the government is supposed to have its own in-house consultancy: it is called the civil service.

Furthermore, Glass argues that IT spending should be included, as this is largely determined by consultants. On that basis, new Labour has spent £70 billion on consultants since 1997 – the equivalent of perhaps 150 hospitals or about 140m pieces of body armour Government and the MCA challenge these figures on the basis that, with or without consultants, computer systems would have been bought anyway. But Glass’s point is that these acquisitions and systems are overseen by consultants. They therefore must take their share of the responsibility for costs and failures.

But perhaps more important is the astonishing blurring of the lines between consultancy and government. Patricia Hewitt, the health secretary, was head of research at Accenture when it was known as Andersen Consulting. Ian Watmore, head of the Downing Street Delivery Unit, was UK managing director of Accenture. David Bennett, chief policy adviser to the prime minister, is a former McKinsey partner. Richard Granger, head of the NHS IT programme, was with Deloitte. And so on. Meanwhile, moving in the other direction, Sir Michael Barber, former head of the delivery unit, has gone to McKinsey. After his fall, David Blunkett went to Indepen Consulting. Lord Filkin, a Home Office minister, became an adviser to Capgemini and a director of Accord. Derek Scott left the job of economic adviser to the prime minister and joined KPMG as chief economist. And so on.

This mutual interpenetration is not restricted to the people at the top. Sir Peter Gershon’s 2004 review – Releasing Resources to the Front Line – recommended cutting civil-service numbers by 84,000. These cuts are being implemented, but seemingly without regard to the fact that the work still needs to be done. As a result, consultants are having to fill jobs at every level. And they do so at a staggering cost to the taxpayer. Mark Serwotka points out that, after Gershon, HM Revenue & Customs set out to save £105m a year in staff costs. In doing so, they have paid £106m to consultants. “The cost is virtually identical,” says Serwotka. “What that tells us is that it is not about efficiency or good advice or good practice, it’s a political head-count reduction. What’s actually happening is a dreadful use of taxpayers’ money.”

Two PCS members may be sitting opposite each other doing the same work for about £150 a day. A Gershon reduction means one vanishes only to be replaced within days or weeks by a consultant paid £750 a day for the same work. “We are actually using consultants to show that we had dropped manning levels, but actually we hadn’t,” says the Tory MP Mike Penning, who has seen his local hospital in Hemel Hempstead stripped down to the point where it is now to be closed on the advice of consultants.
The number of consultants working as civil servants has led to a bizarre state of affairs in which MPs cannot even be sure whether they are talking to civil servants or consultants. Penning now routinely asks officials who come before him at parliamentary committees whether they are full-time civil servants or not.

()Such is this mingling between consultants and government that objective assessment of any project or spending plan is becoming impossible. If civil servants think they might get a job in a consultancy and consultancies want to keep up their earnings from government, nobody will want to rock the boat. Tony Collins of Computer Weekly has studied the NHS computer project in depth. He has found that it is often impossible for anybody to question spending plans, however absurd they might be. “Everyone,” he says, “buys into a good idea and no one says no… My experience of civil servants is that they find it very difficult to do anything within the culture, there’s more back-covering than anything else… If I had gone to government and said I wanted to build a bridge from England to Ireland, I’d have been kicked out. But that is the scale of the NHS computer project. Nobody said what an enormous undertaking it was.”

At least half of the £1.5 billion spent so far on that project has gone to lawyers, consultants and PRs. The last are crucial because they are there to persuade GPs and hospitals to use the new system. The one thing the NHS fears most is professional rejection of the system. This is a bad case of a shot in the foot. Government gave GPs and hospitals autonomy in the hope that it would improve efficiency, but this also gives them the freedom to refuse a centrally imposed IT system. In addition, many hospitals already have sophisticated computer systems of their own that may not be compatible with the new system. Such potentially fatal problems do not seem to have been raised at the outset, when there was an air of relaxed confidence.

“It is misleading to say that the scale is bigger than has ever been done before,” said Richard Granger, director-general of NHS IT, at a conference in March 2003. “The extra spending of £2.3 billion over three years is not such a terrifyingly large project – it is comparable to other mid-size projects in industry and government that are regularly completed in time.” And yet recently, Sir Ian Carruthers, acting head of the NHS, described it as the biggest project in the world.

“It’s a very artificial environment,” says Collins. “They are trying to launch a horrendously complicated computer project without a governance structure in place and without the mechanisms in place to have more accountability and more transparency to compensate for the fact that there is no board.”

Government contracts, in short, have no “no men” to counterbalance the effects of the yes men. This has resulted in a form of Stalinism – as Collins has seen, people fear being seen not to toe the party line on any given project. Indeed, as one academic commented, consultancy has become like Marxism in the Soviet Union: nobody believes in it, but everybody must pretend to. Neil Glass, the whistleblower, says he found to his cost how pervasive this paranoid culture had become. He can no longer get a job with any of the big consultancies. “I’m completely blacklisted,” he says. He claims he even had to publish his book privately because mainstream publishers were afraid of the power of the consultants.

The defence of the use of the consultants is feeble or nonexistent. The MCA provided me with two examples of successful government use of consultants. One involved maintenance engineers laying more sleepers at night on the London Underground, and the other was the introduction by IBM of a scheme allowing you to buy your road-tax disc online. Furthermore, several interviews promised by the MCA never materialised. Government press officers also seem remarkably slow to respond to any query about consultancy spending.

Fiona Czerniawska of the MCA admits there is a problem: “There is a joke about consultants that goes back to the ’60s. A consultant is somebody who takes your watch and tells you the time. People still have that perception.” Public relations in the business, she admits, are very poor. Surveys of companies that have used consultants found that people at the top were close to 100% satisfied – hardly surprising, since they would be the ones who took the decision to call them in – but satisfaction rates at the bottom fell to 17%. Implicitly, she seems to acknowledge the scale of the failures of consultancy in government: “When things go wrong, there’s usually faults on both sides.”

But how did all this happen? It began with a rather odd article in the American magazine Business Week in April 1930. It was headlined Advisors on Advisors, and reported the views of James McKinsey of Chicago University. McKinsey said a new type of professional had appeared in the world, “the advisor that tells business what other advisors to use and when”. The management consultant had been born.

The idea spread rapidly through America and, in the 1950s, through a Europe already in thrall to American business ideas. The leading company was McKinsey, which penetrated the British inner sanctum in 1968 by reorganising the management of the Bank of England. But by then, the word “consultant” seems to have undergone a process of semantic bloat. James McKinsey’s original view was unarguable: modern businesses might sometimes need specialist help from outside. But by the 1960s it was not just specialised help. Somehow the idea had been born that consultants would know how to run an entire business.

This is demonstrably wrong, because one of the strangest things about management consultants is they seldom have any expertise in running businesses. Indeed, the majority have no business experience of any kind. This oddity was identified by Chris McKenna of Oxford’s Said Business School, author of The World’s Newest Profession: Management Consulting in the Twentieth Century. He noted that two-thirds of graduates leaving Harvard with an MBA – the gold standard of business qualifications – did not, as they were intended to do, go into large companies, but into consultancy or related professions like investment banking. Even among the remaining third, few went into the kind of management jobs for which they were meant to be qualified. This remains true on both sides of the Atlantic. “… by the end of the 20th century, the leading professional service firms,” writes McKenna, “had first captured, and then redirected, the elite business schools to serve the specialized needs of their own quasi-professions.”

Management consultancy is, in reality, the systematic avoidance of business risk. In the late 19th and early 20th century, the middle classes wanted to share in the benefits of capitalist success without taking any risks. They achieved this by professionalising themselves – in accountancy, law, banking and, ultimately, consultancy. Their professional status protected them from uncontrolled competition and shored up their fees. They became more respectable than, and frequently as rich as, the entrepreneurs and managers they were supposed to serve. And they did so without any of the risks.

McKenna does not argue that consultants are of no use. He says they can serve two key functions. They can transfer best practices from one company to another, and they can grant legitimacy to a company’s management. They are plainly failing to do the second in the case of British government contracts, since the trail of financial disasters speaks not of legitimacy but of incompetence. They can’t do the first either, because these days it is very hard to say what “best practices” are. Management theories have come and gone, and never more rapidly than in the 1990s. All of them have failed because, as the economist Paul Ormerod observes in his book Why Most Things Fail, “not a single ounce of orthodox theory has been of any use”.

Companies and economies survive on a unique combination of intuition, guesswork and innovation, never on theory. Furthermore, in the 1970s, ’80s and ’90s, consultancy firms managed to debauch the very idea of best practices.

A series of management fads swept the business world. The big ones in the 1970s and ’80s were “lean manufacturing” and “total quality”. “We made billions selling ‘total quality’ in those years,” says Neil Glass, who was, at the time, with Gemini Consulting, later to become Capgemini. These fads were created in response to fears that the Far East was out-competing the West. Companies like Toyota were producing more reliable cars with lower stock overheads. Kanban, the system of just-in-time manufacture, where each component arrived only at the moment it was ready to be used, was the cool business aspiration. “Lean” is a word still used to describe efficiency programmes in the civil service. And Kanban was the system that, when adopted by the MoD, deprived troops of body armour. In the 1990s came “business process re-engineering”, an idea that means very little but did at least give the consultancies a new product. It was in this phase that Capgemini came up with the stunt of trademarking the words “business transformation”, an idea that goes beyond satire, coming close to the privatised oxygen industry in Ben Elton’s play Gasping. Luckily, the trademark bid was turned down.

In addition, the 1990s saw the appearance of words that simply gave a consultancy spin to actions that companies would have to take anyway: primarily, sacking people. “Downsizing” was the key euphemism for mass redundancies. This then became “rightsizing”, a slightly less scary version of the same thing, Finally, when the whole process had gone too far, “upsizing” appeared in the consultancy lexicon, meaning, of course, rehiring people you had just laid off.

New Labour didn’t see through this babble, though even The Economist magazine looked on with scorn. A review of Transforming the Organisation, a book produced by Gemini, concluded with an almost clairvoyant vision of the present chaotic nexus of government and consultancy: “Given that so few companies have been able to implement a moderately simple management idea, such as re-engineering, how likely is it that they will be able to grapple with such a gargantuan successor? A true ‘transformation’, as outlined in this book, would employ an army of consultants for a century – and cause endless disruption.”

But perhaps the most visible sign that Labour couldn’t wait to bring in the consultants was the DeLorean affair. John DeLorean was a US businessman who, in the early 1980s, planned to set up a company to produce a highly futuristic sports car. Aided by government incentives, he established his plant in Northern Ireland. The disaster that ensued was partly due to a poor business model and partly due to fraud that had gone undetected by DeLorean’s auditors, Arthur Andersen. As a result, Andersen was effectively banned from government work and Margaret Thatcher launched a £200m lawsuit against the company. But when Labour came to power, the lawsuit was settled for £22m. Then Andersen split into an accountancy business – that became the auditors of Enron – and a management consultancy, known as Accenture. Aided by the advocacy of Patricia Hewitt, Accenture became a big government supplier. The truth was, Labour was so keen to bring in the consultants over the heads of the civil service, it chose to ignore the lessons of the recent past.

It was not long after the emergence of Accenture that the real boom in government consultancy began. After the buzz words of the 1990s came “e-business”. This was the new fad, based on the looming internet phenomenon. “If you’re not fast, you’re dead,” was typical of the mottos that were being flung about the place. The dotcom crash of 2001 vaporised those delusions and almost put large sections of the consultancy industry out of business. Shaken but not stirred, the consultants bounded back with “transformation”, with attendant subcategories like “reconfiguration” and “right-shoring”. This last absurd usage means moving jobs to India.

From the beginning, “modernising Britain” had been a Blair obsession. In his way stood the civil service. Most agree that training and recruitment practices within Whitehall would work but it would take perhaps 20 years to bring about the changes Blair wanted. Blair couldn’t wait that long, so he brought in the eager consultants. The problem was that consultants need managing. They exist, as do all businesses, to make money. It is the job of their client to control this, but, as everybody – even Lord Birt – now acknowledges, there is almost nobody in government who knows how to do this.

In July the home secretary, John Reid, addressed a meeting of Labour peers. “I am a politician,” he said, “not a manager.” There are two fatal aspects to this statement. First, it is an admission that politics is now so professionalised that we cannot expect our leaders to be able to do anything but politics. This makes them overtrusting of external “expertise”. Secondly, the room was full of politicians who were also brilliant managers – the business peers Labour itself had created. “It was incredible,” said one, “there were a dozen people in that room who would have done for free what he then went off and paid consultants a small fortune to do. He could have called in Lord Browne from BP and asked him to put a proper management structure into the Home Office. But he didn’t.”

Everybody agrees, the MCA included, that consultants can be useful if – and only if – their task is tightly defined and controlled. But, overwhelmingly, government contracts have been vague and subject to constant change. Like your local builder, consultants quietly add on huge costs every time anybody makes a remark about what must be done. Furthermore, they have so far done so with an almost complete lack of accountability. Tony Collins points out that government IT contracts have guaranteed that consultants will get 80% of their money irrespective of whether the system worked. The remaining 20% is conditional on usage. “This could never happen in the private sector,” says Collins. “Reid, when he was health secretary, said he was going to set up 30,000 new broadband links, and Accenture allegedly claims 200,000 ‘deployments’. There aren’t that many sites in the NHS – they probably just meant Windows upgrades.” Actual usage, actual patient care, get lost in the blizzard of big numbers.

What we need, say some, is our equivalent of America’s Clinger-Cohen Act. This was introduced by two Republican senators in 1996 after a series of cases in which consultancies ripped off the federal government. The act forced all departments to monitor and control every project, effectively imposing a proper management structure where none had existed before. There is no prospect of that happening here and, seemingly, little political will to shake off the burden of the deals already done. Identity cards, for example, involve a consultancy-led IT scheme that is presently estimated to cost £6 billion, or almost £100 per head of the UK population. In a new book, Britain’s Power Elites, Hywel Williams estimates the likely cost will be £14-18 billion, or £300 per head. This government is showing few signs of shaking off its addiction. Meanwhile, the Tories, with a few exceptions like Mike Penning, have been bafflingly quiet on the subject.

But there are hopeful signs. Richard Granger is now imposing more stringent controls on contracts for the NHS computer. The failure of the NHS to show anything like the signs of improvement to be expected from Brown’s billions is starting to sink in. Mark Serwotka’s union is threatening a strike ballot in January. There can be no doubt that a project like the NHS computer would be a fantastic idea if it can be made to work, which, sadly, it can’t.

That Blair was sold a pup in 2003 is nothing against Blair, and he is not to be criticised for wanting to circumvent the more glacial procedures of the civil service. The whole thing has simply been the result of a collective delusion: that there are quasi-scientific, objective ways of managing human affairs that transcend all considerations of culture, ethos and environment. Consultants sold this lie, government bought it, and we’re paying for it.