Management Magicians

iring consultants can be a high-stakes shell game. Seeing past the glossy brochures and the hype to find the real Merlins is no mean trick. Managing the wizards is no mere wave of the wand, either. Even if you put your best people on the case night and day, you can lose control, and a project that began as benign as a bunny can come out of the hat a monster.

Government management consulting has become big business-agencies spent $1.5 billion on it in fiscal 1996 alone-and all the top firms are vying for a chunk of the federal market. Managers need clear heads, good advice and well-defined projects before wading into this teeming bazaar. Fortunately, the boom in federal consulting means many managers have been there before and their colleagues can benefit from their experience.

The General Services Administration, for example, learned loads of lessons when it virtually remade itself with the help of a consulting firm in 1994. Six days before Christmas that year, President Clinton, still smarting from the Republican takeover of Congress, announced Reinventing Government II, his plan to accelerate agency streamlining. GSA was one of the agencies targeted for speeded up slimming down-the administration raised the possibility of dropping as many as 12,000 GSA employees. Facing the ax, GSA struggled to keep a semblance of control over which operations to keep and which to jettison.

The Office of Management and Budget granted GSA a role in deciding its fate, but only on the agency's promise of doing a privatization analysis immediately and finishing it within a year. Caught between a ticking clock on one side and limited outsourcing expertise on the other, GSA senior managers sought a Houdini to help them escape. "We needed a third party with integrity, a good reputation, and no vested interest in the outcome," recalls John Sindelar, chief of staff in GSA's office of governmentwide policy.

As top GSA managers sat in an after-hours meeting trying to conjure up the right quick-change artist, Dennis Fischer, GSA's chief financial officer at the time and now head of the Federal Technology Service, tossed the name Arthur Andersen LLP into the mix. He noted that the firm was helping the Energy Department restructure. GSA's team did some research and discovered Andersen was analyzing privatization options for DOE and doing a report attesting to the accuracy of Energy's data-exactly the sort of work GSA wanted done. Plus, GSA could get the firm on board quickly by using the Federal Supply Service's quality management service and products schedule.

Soon, an Andersen team was making its pitch to an edgy assembly of senior GSA managers who would be responsible for seeing the process through and whose employees and programs would be most affected by the outcome. It was a tough crowd. GSA officials feared the outcome of the firm's work would be lost jobs and were concerned about giving outsiders too much control of the agency's fate. Nonetheless, Andersen's presentation succeeded. Six- teen months and $5 million later, GSA had used the federal operations review model (FORM) it developed with Andersen to allocate full costs to each of 16 business lines, analyze whether they supported GSA's mission, and examine options for streamlining.

GSA's experience illustrates some tricks likely to produce bigger payoffs for the increasingly large amounts agencies are spending on consulting services:

• Hire consultants only when you need to gain specific expertise your staff lacks, when you're under a tight deadline, and when you need an independent and objective view.
• Network to get independent advice on which firm to use.
• Make sure the firm has significant experience doing what you need its experts to do.
• Check the firm's references and performance record.
• Meet the staffers who will work on your project and make sure you trust them.
• Get your senior managers to commit to sticking with the project.
• Use flexible contracts to put consultants to work quickly.

Smoke and Millions

If you're planning to bring on management advisers in the near future, you're not alone. Consulting is growing governmentwide. One measure, GSA's quality management implementation services schedule, saw spending increase nearly 4,000 percent, from $6 million to $230 million, between fiscal 1994 and fiscal 1997.

Statistics on more traditional management consulting services-management support, studies and analyses, training, systems analysis and the like-show spending of $1.5 billion in fiscal 1996, according to Federal Procurement Data Center numbers compiled for Government Executive by Eagle Eye Publishers Inc. In 1994, the U.S. management consulting business as a whole generated $11.4 billion in fees, according to the Gartner Group, information technology advisers to industry and government.

"Our growth has been 30 percent a year for the last six or seven years," says Ian Littman, a partner with Coopers and Lybrand. "[Government consulting is] a huge part of Coopers & Lybrand now, whereas 16 years ago, government consulting was a little blip on the screen." Price Waterhouse reports pulling in $91 million in revenue from federal management consulting in 1996, 13 percent of the firm's U.S. management consulting revenue for the year.

The astounding recent success of management consultants in government and the private sector was brewed in the cauldron of technology advances and budget retrenchment during the 1980s and early 1990s. Government downsizing, which began in earnest in 1993, has left agencies short of specialized talent, a gap managers increasingly are filling with consultants.

"Controlling costs has become an enormous part of the operation," says Renato DiPentima, former Social Security Administration chief information officer, now president of SRA federal systems. "If I hire you, I have to figure you're going to be there for 30 years. I don't know if government wants to make that kind of commitment anymore. They'd rather hire on a project-by-project basis."

Where management consulting once was primarily a matter of analyzing a business problem and writing a report with recommendations, it has evolved into "end-to-end" engagements that involve consultants in every aspect of the organization from analysis to implementation-frequently implementation of information technology. "When I came into this business, most of our work was studies with some recommendations," says John Newman, a Booz, Allen & Hamilton senior vice president who works with civilian agencies. "Our clients had a hard time trying to implement our recommendations." Now, says Newman, federal assignments "bring together management consulting, technical consulting and program management, and systems engineering into fundamental change. It starts with business process reengineering and, more and more, involves implementation, including technology systems."

Tigers Changing Stripes

This evolution, which began in the private sector, has brought a massive consulting convergence. Former accountancies turned consulting firms-such as Andersen Consulting and Coopers & Lybrand-now offer technology services. At the same time, one-time technology firms, such as IBM and CSC, now proffer consulting services.

"People don't bring in the Big Six [consulting firms] just to consult anymore. Now they want people to come in to build systems and leave functional ability behind," DiPentima says. "I now describe SRA as an IT consulting and services firm. When the company started, its focus was consulting and analysis. Then it slowly migrated to systems and software to systems integration."

Almost all the big firms have made such a migration. KPMG Peat Marwick LLP, for example, just won a $186 million, 10-year contract with NASA for an agencywide financial management system. David Halwig, KPMG principal for public services systems and technology, calls the contract "a model for end-to-end consulting services from management to technical restructuring."

Halwig says management consulting has evolved into computer systems implementation and change management to transform organizations. Littman says technical consulting "exploded to about a third of our business in the last five or six years," and that is true of most of the larger consulting firms working in government.

In addition to the transformation of the consulting industry, the field of players is shrinking. Coopers & Lybrand and Price Waterhouse have announced they plan to join forces to form a firm that would have $12 billion in annual revenues, according to Consultants News. Also in the offing is an alliance between Ernst & Young and KPMG that would form an $18 billion-per-year company.

But these couplings may not produce benefits for government, at least in the short term, says Tom Rodenhauser, editor of Consultants News. "The mergers will take the firms out of play for two to three years for integration, if they happen," he says. "Realistically, Andersen or Booz can say, 'Look, they're not going to focus on your problem because they're worried about the merger.' Mergers of this size are always messy."

The melding of computing and management advice, of technology and consulting firms, is supposed to better serve organizations seeking cross-enterprise assistance. But, that mix, too, can stir up problems for managers by making it harder for them to tell which company does what well. "It's important to realize that although IBM may have a large consulting group, it's not a change in the tiger's stripes," says Christopher Hoenig, associate director of information resources management policy and issues at the General Accounting Office's Accounting and Information Management Division. Hence the importance of being careful when choosing a management wizard.

Voices of Experience

First, get your own act together, recommend the voices of experience. "A mistake organizations make is thinking these folks are magicians and they're going to come in and wave a magic wand and figure out what you need," says Constance Berry Newman, who, as undersecretary of the Smithsonian Institution, serves as its chief operating officer. "You have to do your homework and narrow down what you want, otherwise the consultant goes on a fishing expedition." Consultants say federal managers are getting better at this narrowing, if for no other reason than their growing experience with consultants. "These are not first-timers," says Littman. "Government has gotten more pragmatic. They are under scrutiny from the Hill and their budgets are getting squeezed."

Once you have a clear objective in mind, weigh whether you truly need a consultant to achieve it. You know you need a management sorcerer when the problem is more complex than you can handle internally or needs to be done faster than your staff can do it. Seek consultants for their special knowledge or expertise, a different perspective, a creative approach and to get an independent, respected stamp of approval. Consultants sometimes can go where agencies aren't welcome, Sindelar says, noting that without Andersen "we would never have been able to get benchmarking data from the private sector." Newman is willing to bring in hired hands with skills her full-time staff neither has nor needs. "The Smithsonian is getting into media-royalties for participating in films, technical assistance in television programs, a possible TV series," she says. "We go outside for advice on how to get into the field and the kinds of contracts that make sense."

When you're in the market for a magician, network and check references thoroughly. "Do reference checks with people the consultants say they worked for on previous similar projects," Newman recommends. "Did they deliver on time? Were they difficult to work with? Did they stir up trouble in your organization along the way? What did you do with their recommendations? If you shelved them, why?"

Newman, who is a member of the District of Columbia financial control board, a congressionally appointed group with oversight and decision-making power over city finances, and was Office of Personnel Management director, has lots of experience hiring consultants. It has taught her, she says, that "what matters is the reputation of the firm and the backup for work on your project and the experience of the people on the project. Too often in this town there's not a lot of cross-checking. Defense might have had a terrible experience with a certain firm and a certain partner. Then, say the firm bids on a job at Commerce. Nobody checks [with] Defense."

When the stakes are high, Newman also hires firms to advise her on hiring consultants. Such independent advice is a valuable commodity, says Hoenig. "Someone who works in the business you're in, who knows it, can say 'no' and can ask tough questions of you," he says. Some say acquisition reform, with its emphasis on past performance, has encouraged agencies to do more research. "Clients are checking across government," says John Newman of Booz, Allen & Hamilton. "When we list a project as prior experience, we have to list all contracting officers and key clients and their phone numbers."

Acquisition reform also has reduced procurement cycle times and made available more flexible contract vehicles so agencies can get consultants on the job more quickly. "When [cycle time] was 18 months, often the sponsor and the people originally working on the project had changed jobs," says Littman. "Now you're working with the original sponsor and they're still passionate about the project and you can get on with the job."

The improvements also are helping managers better define and limit projects. "Because of the complex procurement process, program managers, such as myself, had to do one enormous buy because how many times do you want to go through a two-year, two-protest acquisition?" DiPentima says. "But the chance for error was enormous because you didn't know what was going to unfold over the life of the contract."

It Is Who You Know

Another reform, allowing contractors to make oral proposals, promises to help with what may be the most important element of choosing a consultant: making sure the right people will work on your project. "Not all the people in a firm are great," says the Smithsonian's Newman. "It's very important which partner is responsible for your project and which project manager will be assigned to it. You have to have an agreement that they won't [take away] the team they brought in to convince you to go with them." She and Hoenig say they have chosen and rejected consulting firms based on whether they will be working with specific staffers. Consultants recommend this approach, too.

"Increasingly, I believe the important decision is not a firm's past performance record, it is more who are the individuals who are going to be working on the project," says Booz's Newman. "In the past, it didn't matter so much how the interactions went. Now it's crucial for us to be working daily with people from the client agency and the way we work together is crucial."

So crucial, in fact, that experienced users of consultants also insist that only their best employees work with the firms' staff. "Put on the project the people you hate to lose most because they are too valuable to be away from their work," Hoenig says. "That's the way you get leverage over the consultant." When Hoenig was in charge of a project with Booz, Allen and Hamilton to review Library of Congress operations, "We had GAO people working on each team [with Booz staff] to 'help,' but really to keep track of them," he says. GSA's Sindelar says the agency's business lines put their best people to work developing FORM analyses for the Andersen project because they knew how high the stakes were. Besides, if you want consultants to leave knowledge behind, it makes sense to have your best people learn from them.

Controlling the Conjurers

Most old hands say the real wizardry in dealing with consultants comes in managing their work. "A number of managers and executives say, 'We're stretched and we've got a problem and just delegate it to the consultant," says Hoenig. "It's not like hiring a plumber. The larger and more technical the project, the less you can afford to delegate it."

Keeping consulting projects on track takes constant and consistent attention from the top of the agency on down. "You always have to monitor them," says the Smithsonian's Newman. "It requires constant communication and products-status reports, meetings, etc.-so you can find out what they're doing and tell them when they're going off in a direction that's not going to be helpful." Consultants, too, underscore the importance of having regular checkpoints during a project. "I would argue for clear, crisp decision points along the process where the client could end a study and take a different direction," says Booz's Newman.

It also helps to have tough contract officers who will hold consultants' feet to the fire. "We have two lines of communication [with consultants], the contracts person and the program people who are working with the consultants day to day," says the Smithsonian's Newman. "If the contracts person holds the conversation, it's adversarial. At the same time, the program person may be having a very friendly relationship with them. We had a consultant putting in our financial management system and we had a problem with them, so we played 'good cop, bad cop' with them to pull them back and shape them up." Consultants regularly should be reminded their services are not needed forever, Newman advises. "In almost every meeting with [the financial management system consultant] I let them know we did not want to be rooming with them next semester," she says.

Vanishing Act Ahead?

As managers become more savvy in their dealings with business soothsayers, they are likely to impose more performance requirements on them at more frequent intervals, Hoenig says. But right now, government has too little performance information about its own operations to make performance-based contracting broadly viable. "The more the Government Performance and Results Act is implemented and drives performance measures, the more performance-based contracting will be possible," he says.

Once performance-based consulting takes hold, it may become possible for federal managers to craft gain-sharing deals in which a significant portion of consultants' fees are based on and generated by performance gains resulting from their work. The current IRS tax systems modernization effort contemplates such an arrangement. But Booz's Newman isn't sure agencies are ready to have consultants take a share in savings.

"It's hard under current regulations for agencies to contemplate a situation where the consultant could take a 40 percent loss, while at the same time there was the possibility of a 40 percent profit," he says. "What struck me about the IRS proposal was the huge uncertainty about tax legislation, the role Congress might play, the possibility of an agency advisory council. So many factors are out of the IRS' and the potential contractor's control that the risk is huge and there's no guarantee the parties would be empowered to keep their sides of the agreement."

Then again, it's possible consultants may someday perform a vanishing act, replaced by the very technology they've become so expert at peddling. Some consulting firms, and a few agencies, already are using advanced software programs that let them model whole organizations. Now, artificial life research is making it possible to model whole industries on the one hand and the random behavior of all the individual actors involved in a project on the other. Soon, all a puzzled manager may have to do is sit down at the PC, fire up a program and, abracadabra, have the solution to streamlining the division, picking a function to privatize, allocating staff more effectively, or knitting together all the agency's systems.