Hello and welcome back to Smart Consulting Sourcing, the only podcast about consulting procurement.
I am Hélène, and today we will be talking about A French Government Controversy about the budget for consulting services. However, before that, let me give a recap of the podcast from last week.
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Today is a special episode for our podcast since, for once, we are adding the image to the sound. The video will be available on our YouTube channel in the Interviews section.
This week, I wanted to discuss why is the French Government pouring so much money into consulting?
But before we start today’s podcast, I’d like to introduce my listeners to a very special guest who’s here, with us today. Mr. Laurent Thomas, my co-founder and former EVP at Solvay and former senior partner at Oliver Wyman.
Laurent and myself have deeply researched today’s topic and have read closely the detailed report made by the Senate Commission here in France.
Is the French government spending too much money on consulting
According to a recent study from the French Senate, Emmanuel Macron’s administration and other public organizations have signed contracts worth at least €2.4 billion with consulting companies since 2018, for work on subjects ranging from the introduction of the coronavirus vaccination to digital transformation.
According to the report from the inquiry committee — made up of a group of senators and led by the opposition — consulting expenses have more than doubled since the beginning of Macron’s tenure as French president, with a sharp acceleration in 2021 (up 45 percent from the previous year) due to the pandemic.
The Senate’s investigative team, which criticized “opacity” and “lack of accountability” in the use of consulting firms, gave a comprehensive evaluation of consultancy spending. Laurent and I have looked into the report from a strategic and procurement standpoint to give the keys to deciphering this controversy.
Well, the first thing we need to look at is why do governments use consulting? Indeed, the use of consultants in the public sector is not that different from the use of consultants in the private one.
Consultants are used to support decision making, strategic plan, feasibility studies, anticipate the impact of such and such new ways of working or to support and accelerate the implementation of those decisions. So setting up a project management office, change management or implementation of IT projects.
So, I read in a newspaper that the increase in strategy spending for the French government was a sign of a lack of trust in the administration and the civil servants. What’s your take on that?
Not really. In my view, it’s a mistake to oppose consultants and collaborators. The two should work together and provide complimentary skills and knowledge. They know there are experts about how to reframe a question or how to analyze the question and the collaborators know in depth their activity. It is true.
However you might have read that here and there, that when a test is asked from both in parallel and without knowledge that the same task has been asked from consultants, one can only wonder if the government is not wasting money.
So, maybe the right question is the French government spending too much money in consulting? So if you look closely at the expenses in particular in 2021, so the government spent what 800 million euros, but when you look at it, actually only 25% is dedicated to management consulting and the rest is IT related.
So, and it makes sense if we know that the French government has gone through a digital transformation of the last 10 years for instance we, we do a tax return online in a few clicks. I know that our US friends will be very glad to hear about that. We can ask for a driving license completely online from A to Z.
We have a website that regroups all public service that called servicepublic.fr, which is kind of the hub for all the public service. So a lot of things have happened on the digital transformation side, and actually the expenses were higher before 2014 and started to grow again.
When Macron became president, of course not excluding the pandemic part, which is like made the expenses grow much faster.
Indeed we are in a period of crisis or we are just out of it. But we are looking at historical data from 2019, 2020, 2021, when the pandemic crisis hit the most.
There was a lot of uncertainty. And when there is a lot of uncertainty and you want to anticipate the future, anticipate the consequence of decisions and decide what you want to do fast, using consultants kind of makes sense.
And when you’re in a high change situation, like a merger, if I make a parallel with the private sector, there is always an increase in consulting cost.
I remember when I was at Solvay, the consulting cost after the merger with Rhodia and after the merger with Cytec, almost tripled. And then they went back to normal. In the present case, the increase is associated with digital spend, as you said, and to the COVID situation.
And a few years ago, it was linked to all the studies and implication of Brexit.
Yeah. So, indeed if we look at our European neighbors and naming countries comparable in size and influence like the UK and Germany, we see that France is spending less in consulting than those countries. And even if you compare to the private sector, the spend is lower.
So maybe that’s not where the problem is, but there was another approach which was why do we work with the American strategy firms on topics that can be extremely strategic for France in a context where we realize right now with, you know, indeed the Brexit.
Also the impact of the pandemic on the supply chain and the war in Ukraine that we need to go back to some energy sovereignty or industry sovereignty. Why not intellectual one? Right? And so the question here may be, why didn’t we work with the French or European champion?
Well, the first thing you need to have in mind, I don’t know if you’ve noticed is that even in the large US consulting firms, most of the partners, French or German or English in the present case, we’re dealing with the French expenditures.
So those were French partners, but in the current situation most the market is dominated by the US players.
If you want to have access to global projects, if you want to have to global opportunities as a professional consultant, there is a very limited choice and you end up working for a US company.
The one thing we need to know also is that some projects and I would assume that this is the case, especially for defense related consulting assignments, you need the security clearance, and only the Europeans will have that.
However, you will not see, I don’t think you will see us partners flying in from New York on highly strategic and confidential European projects. I had as an individual, the exact opposite problem when I moved to the us and wanted to work on Iowa based projects.
They all required having a green card, which I didn’t have. And that was a way to impose a kind of sovereignty from the US side, this being said, one can ask why the European partners are not in European companies. I’m pretty sure they would love to, but there are not so many European champions.
As I just mentioned, it’s quite difficult to find a job in the last consultancy that will have access to large consulting projects with large clients in a European setting. And the other thing is that each time a European firm starts to reach a given level of critical mass in term of business.
They end up acquired by a US company and this is the trend we observe everywhere in the world. You have the same thing happening in the middle east. You have the same thing happening in Asia.
As soon as you start being noticed, you end up on the radar screen of the mini teams of the large consulting firms. And you end up being acquired. The market in itself will not change the situation because there’s some kind of logic to it. Aligning the global corporations with global corporations.
The impulse can only come from the clients if they want to, if they have the willingness to favor the emergence of local champions, they can, nothing is preventing them to push in this direction.
Nothing is preventing them from assigning projects or clusters of projects to European groups. And those groups will have to recruit.
Then they will tap into the partners of the US firms. It’s only through the willingness of the clients or the regulation that you can change the market. The market itself will not evolve for the sake of pleasing the public.
But there’s still an issue here in the fact that, you know, the US government has legally access to the data from any US company anywhere in the world. So it’s quite difficult to enforce the Chinese walls in practicality.
True. And can say whatever you want, that the data must be stored on European servers, you still have this risk of access to the information.
But solving the sovereignty question is not all, because once the regulators will be done with the sovereignty questions, then they can start looking at the conflict of interest that are emerging,
Where consultants at the same time helping governments to set the policies and helping the companies to either implement them or work around them. I remember some articles about some US companies where specialists were wondering if the company was not, in itself, a systemic risk for financial services.
You could read recently articles about politics, in Florida, where McKinsey is in the middle of another scandal having put in their proposal that the company should work with them because of what they know and who they work with. Clearly stating black and white in the proposal that they’re working with.
The regulators and that as a consequence, they could be beneficial for the client, a pharmaceutical company for the world to work with them.
This raises the question of how decisions are made. Is there some ethics, some governance in the way we engage the consultants, especially in the public sector.
So it’s true. I think that the first thing that comes to mind is to implement a smart mix of demand management and make or buy. So demand management is all about working on the right project, making sure that you spend your money on what is most strategic.
And actually, if you look close to the other report from the Senate in France, you see that the only ministry who applied some sort of demand management system, that ministry has the lowest spend compared to other ministries. So it means that’s a way to put things in control, but that’s not enough as you were saying.
So it was the ministry of defense, right? That was the ministry of defense. I wanted to be command in control.
Yeah. Command in control.
That makes sense.
Exactly, but there’s another part which we mentioned is kind of twofold. One is make sure that it makes sense to work externally, and that makes sense goes to two things. One is, do we need those skills? Are they important for us in the future? And the other one is confidentiality.
They’re also of course all the parameters, but these are the more important, and that comes to make or buy analysis, that procurement leaders know very well and it applies to consulting. It applies very well.
And during that make or buy analysis what help them is not only look at the relevance of externalizing the project, but also who they can work with depending on the level of confidentiality and the level of skill they want.
You could work for instance, with either some key members of the administration being mandated on special projects. So for projects that have a confidential nature, or you could even set up a specific task force like you have the “Cour des Comptes” to audit.
You could have a specific I don’t know, government excellence taskforce that would gather former consultants and have your own team that works on strategic projects on behalf of the French government, being totally independent from any private company. Is that what you mean?
Absolutely. So this is kind of the first step is that, you know, I am spending right. And am I right to externalize this specific project? We are decided we’re going for a project. Then you need to work with the right suppliers.
I think that one thing that may not be well understood, and it’s not specific to the public sector once again, is that each project has specific needs. It means that even if they might look like the same, the skills that you require and the type of consulting firm that can work on is not necessarily the same.
You know, consultants are not commodities. You cannot take one and then change with another one. That’s not how it works. Each one has a very specific skillset. And if you really want to optimize the use of them, the impact you get from them and the money you invest in the project, you need to take that into account.
What does that mean? It means that you need to identify very finely your needs. So we’re talking requirement (RFP). You need to know exactly what you want to do and what type of profile could help you get there. That’s kind of the first step.
Then you have a second step that is that you need to have a system in place that is flexible enough. So within a given capability, let’s say strategy, for instance, you have several suppliers that have a slightly different profile, they can get to your needs.
So we’re talking here about anticipating your needs and making sure that you have a panel of suppliers that can answer most of your needs. And then you need also to have some room for getting a last minute consulting firm in that has the exact, very niche expertise that you’re actually looking for.
The one thing I saw in the report from the Senate commission that really struck me is that there was a first mistake made by assigning entire loss to a given consultancy. So if you win the strategy bucket, then you get all the strategy projects.
You cannot blame for the one. You cannot only blame the one that decided to put in place a system that gives everything to the same guy without even to go through another competition, anytime there is a new project. But on top of that, they have separated the strategy bucket and the implementation bucket.
But, if you worked on the strategy, you get the priority right “Droit de Suite” to have the right to support the implementation, when indeed, it was another guy that had won the implementation bucket.
That to me is a bit shocking, because when you analyze the fees that were collected by those companies that work on strategy, McKinsey, to name the one that had the lion’s share, they tend to have two third of the revenues on the implementation.
When indeed they end up using the same daily rates for an implementation work, that should be invoiced at the value of implementation, that is much lower.
Sometimes half is not one third of the value of the daily rates for strategy. And I don’t mind having this provided the rates are adjusted to the market rates. And this is not happening today.
Yeah, and there’s another thing also that we observe is that when a consulting project is launched, the management tends to disengage and it’s again, not specific to the public sector, but the problem is that you are jeopardizing the changes of success of your project, because you can’t get the optimal results.
What you need to do, as a client, is to ensure that your requirements are respected and your results are delivered on time and quality.
And that goes through putting in place a project management team, that means putting the consultant in the right conditions, collaborating with them, giving them the information, making sure they have access to the right people.
That means aligning the internal stakeholders, and getting the support from the top management. And it means putting in place governance to steer the project.
If we make a parallel for those that are listening to us, without telling the experience of working with consultants on a regular basis.
When you are hiring someone to redo your kitchen or your bathroom, you don’t just hire the guy and then show up three months later to make sure that everything went according to plan, you will go on a regular basis, check things.
You will have some trade-offs to decide on. You will have some decisions to make that are either lead time, budget, quality, looks of what you are asking for, but you don’t just let the service provider take care of everything and then expect to have exactly something that matches what you wanted in the first place.
Yeah. It’s actually a very good transition to kind of the last aspect that I want you to talk about, which is the performance measurement. I think that indeed in the consulting space, we tend to consider that as a black box and not measure the performance of the project.
Not measure if this project brought us the impact that we paid for and this is really important because that’s the only way you can have a panel that always fits your needs, and you can work with the best ones, make sure who is working on what subjects very well.
And also you keep your suppliers on their toes. I mean, procurement executives are used to do that, but they don’t do that in the consulting space, which is a huge mistake.
You have a lot of surveys and rankings that are available on a lot of other categories. But when it comes to consulting, the only rankings you find the one from Statista, for instance, that’s published on a regular basis, is a brand recognition survey.
Have you heard about this company, or have you ever heard about that company? Have you ever worked with that? There is just absolutely nothing about, would you work with this company again, or is this company delivering actually value for money? And this is a big flaw in today’s information.
But what is interesting, I mean, in the relationship we have with the consultant is that they want feedback. They crave for a measure of their performance, for feedback from their clients on a technical. On a interpersonal skills standpoint, on expertise.
That’s something they want and because they want to improve how they work with the client, they want to better understand the clients. Actually most clients feel like they’re going to break the relationship with a consultant. They’re going to make that work less well. And that’s the opposite that is happening.
And the reverse is also true. The clients who like to get some feedback from the consultant, what went well, what they should have approved. And this does not exist at all. Because no consultant who you never say or take the risk to say, well, you could have done this better, that better.
If there is not a kind of trust environment and a mutual relationship that is established on the first project, you don’t give this kind feedback to a client. Because you don’t want to jeopardize the next project by giving a feedback that would be too harsh on the first one.
Coming back to our initial question, Helene, what’s your conclusion? Do you think the government is pouring too much money? Why is the government pouring so much money?
I think that the first thing that, you know, we need to be aware of that we just got out of an election period, and it was a presidential election, and that was, you know Macron that was at the incumbent president.
So obviously that controversy was amplified by this context. But all in all, if you look really at the numbers, France is not out of tracks compared to neighbors like the UK or Germany or even private companies. That’s kind of rather normal, and on the low end, actually.
Another point is that McKinsey only represents a few per cent of the consulting spend and has benefited, its true, from an ill-conceived procurement process.
I don’t know why they thought it was a good idea to show home calculation on the percentage they really represent. That was not very smart of them. But I fully agree that, even if you take the high case, they are at 5% of the consulting spend in France, which is nothing.
Yeah. And, there are many other firms that are in the same situation and I’m sure they’re very thankful for McKinsey to take the hit for the team. Right?
But, what we saw in that report is that the large part of those consulting expenses are devoted to digital transformation of the public sector and the management of the pandemic.
It’s really difficult to know if they could have done better without the help of the consultants. But we can still identify some areas of progress on how the French government is using buying and managing consulting.
And it means applying some, you know, consulting procurement best practices, such as demand management, make or buy panel management, project management and performance management.
But for those who are interested in reading more about it, and if you want to practice your French, because it’s an article written in French, you can read my article on Medium called “McKinsey Gate : Vraie Polémique ou Faux Procès.” You will find the link in the comments. And that marks the end of a podcast.
Next week. I want to talk about this: Why the scope of a project is so essential in consulting. So stay tuned. Until then, stay safe and happy sourcing.
And if you have other questions about this controversy or on how governments could buy consulting more efficiently. You can always contact me directly on LinkedIn or by email because I’m always game for a chat.
Bye and see you next week! Au revoir!