The management consultancy effect: Demand inflation and its consequences in the sourcing of external knowledge

Abstract

The growing use of external management consultancy services by public sector organizations has generated controversy. Some claim that users have become overreliant on, or even addicted to, this source of knowledge. However, our understanding of this phenomenon and the precise nature of its risks is underdeveloped. In this article, we address these concerns by focusing on whether using consulting services inflates future demand and on its consequences for efficiency. This is examined in the context of the English National Health Service and the adoption of New Public Management practices such as outsourcing and private finance initiative contracting. Based on an analysis of four years of data, the results suggest that using consulting services is associated with demand inflation and has negative implications for client organizational efficiency. These findings reveal a strong management consultancy effect, emphasizing the risks associated with demand inflation, with implications for both theory and policy.