A Permanent State of Alert

This past February, at the World Economic Forum held in New York City, a different room full of CEOs appeared to be taking turns working McCarthy's lever. Or at least trying to grasp it. Divided into groups of 12, CEOs, consultants, and academic experts were asked to develop a five-year strategy for a German auto parts manufacturer with factories around the world.

Public and private partnership resided at the forefront of the discussion, according to Booz Allen Hamilton Chairman and CEO Ralph Shrader, who participated in one of the groups that pursued the exercise using the assumption of an "asymmetric world" — a world consisting of regional trade blocs in which some prosper while others stagnate. It's a world where wars are fought increasingly not between nations but by super-empowered individuals, and where the targets are no longer military but economic.
"The real threat is to our economy and to the corporations that dominate our economy and the underlying economics that really allow nations and the global economy to function. That's what's under attack right now, and this is totally different from what we experienced before," explains Shrader, who says that the events of September 11 have led CEOs to explore new partnering arrangements with government that never would have been considered a year ago.

Although it remains unclear exactly how the relationship will play out in coming months and what role consulting firms  will play exactly in managing that bond, significant adjustments already have occurred. The federal government has assumed control of airport security, provided substantial financial assistance to the airline industry, and provided industry assistance in subtler ways, such as the SEC temporarily waving auditor-independence limitations so that Big Five accounting firms could immediately help clients damaged by the World Trade Center attacks to reconstruct their books.
"Several industries lined up and said to the government, 'We need your support, not just in terms of protecting us but also in investing in us,'" says Paul A. Laudicina, vice president and managing director of A.T. Kearney's global business policy council in Alexandria, VA.
"There's going to be a price to pay for that," he adds. And there will be payoffs for consulting firms that understand the opportunities — a greater need for security technology, a heightened awareness of critical infrastructure protection among corporate and governmental leaders, and rising federal spending — accompanying the shifting dynamics of the private-public relationship.

Booz's New Edge

"What we're seeing is a blurring of the lines between private and public sector consulting and its opportunities that are now being driven by this new world order, and we see a huge opportunity for firms like ours to take advantage of our classic strengths and capability sets that we've got in ways that are truly unique," says Shrader, while alluding to the sizable government encampment in the firm's client portfolio. Today, nearly half of  Booz's government business is made up of Department of Defense customers — a fact made all too visible September 11, when three Booz consultants died at the Pentagon.

Given the unique opportunity it offers CEOs to meet and greet each other, the World Economic Forum has long been a magnet for the heads of strategy consulting firms. This year, Booz's Shrader was joined by the likes of McKinsey & Co. Managing Partner Rajat Gupta, and Bain & Co. Chairman Orit Gadiesh.  However, given its diverse portfolio of both private and public customers, Booz may this year have had something more to tout than its rivals.
Industry's growing appetite for public-private consulting offerings has recently been made visible by the formation of various crisis consulting organizations such as Marsh Crisis Consulting, a new enterprise formed by Marsh & McLennan Companies. MCC made headlines earlier this year when it named L. Paul Bremer, the former chairman of the National Commission on Terrorism, as its chairman and CEO.
"We have gotten a huge response from consumer products companies, and are now getting inquiries from the power sector and also from universities and higher education groups which traditionally have not felt threatened before," says Bremer, who was also in attendance at this year's World Economic Forum. "American businesses need to be concerned about mass casualty, mass destruction terrorism, because, as was the case with the World Trade Center, they can easily be a target." For his part, Bremer was heading the National Commission on Terrorism in June 2000 when the commission published a report that predicted a terrorist attack on the United States on the scale of Pearl Harbor.
The refusal of business to heed the government's earlier warnings has now led industry leaders to do some soul searching, according to A.T. Kearney's Laudicina.
 "Prior to September 11, if you asked a group business leaders how many thought there was an important role in business activities and policy-making for government, you probably wouldn't have seen one percent of the hands go up. Since then, there has been a sea change. We need to understand more about what the implications of that are, both good and bad, and we need to help our clients work through a world in which some of the fundamental assumptions are morphing radically."

A Presidential Directive

The move toward a closer, more interdependent relationship between U.S. companies and the federal government began well before September 11. Early in his second term, President Clinton issued Presidential Decision Directive 63 (PDD-63), which called for a stronger link between national security and economic well-being. "Our economy is increasingly reliant on interdependent and cyber-supported infrastructures," a white paper defining the directive eerily predicted, "and nontraditional attacks on our infrastructure and information systems may be capable of significantly harming both our military power and our economy."

At the time, however, the notion did not hold sway in corporate America. Following September 11, CEOs now listen more closely to strategies coming out of agencies like the CIAO, the entity KPMG's McCarthy once belonged to. "The threats to critical infrastructure are being translated into business impact that corporate boards and senior management understand," John Tritak, director of the CIAO, noted in a speech to a Senate committee. "Business impact includes operational survivability, shareholder value, customer relations, and public confidence. … Corporate leaders are beginning to understand."

Permanent Change or Wave?

But what should consultants understand about any changes to the private-public dynamic? Excluding industry bailouts, the relationship, through entities such as the CIAO, will focus on issues that fall under the critical infrastructure protection and security umbrellas. As a result, many large U.S. companies will expand and sharpen their activities — and service investments — in disaster recovery planning, business continuity planning, and technological security.

In fact, McCarthy cites Year 2000 preparation as an example when discussing the ways industry and government might work together to address post-9/11 challenges. "With Y2K, we were able to build between the government and the industry leadership of major companies the idea that everyone needs to do something, and certain parts of that activity need to be orchestrated," he says. "At the time, we didn't see that same need in the area of critical infrastructure protection or enterprise-wide risk management. Unfortunately, most progress takes place in light of an emergency, whether that's inside a company or a nation. We saw that September 11, in part, served as a catalyst to focus and move on common objectives. Government can't do by itself and companies can't do by themselves."

Other consulting leaders downplay the long-term significance of recent changes in the private-public relationship, and question whether the core relationship between U.S. companies and the federal government has transformed.
Dean McMann, CEO of Ransford, a professional services consulting firm in Houston, says that the federal government "is an oscillating entity that — depending on the leverageability of current events — swings back and forth between centralized and decentralized going all the way back to John Adams turning over the government to Thomas Jefferson."
Sometimes, as the current administration's war on terrorism demonstrates, those swings occur within a single term. "So, while we don't think the private-public relationship has changed," McMann adds, "the federal government is going to have a lot more money to spend than originally expected. And security spending, in both the private and public sectors, will increase, but that's a wave."

Navigating Security Restraints

Regardless of their view on the nature of private-public changes, consultants agree that corporate and federal interest in security issues has surged since September 11. A survey conducted after the World Trade Center attacks by MetricNet, a research arm of Stamford, CT–based IT consulting firm Meta Group, found that 48 percent of responding U.S. companies increased the amount allocated to disaster recovery in their IT budgets (by up to 10 percent).
Consulting firms that intend to cash in on the effects of the shifting relationship between government and industry during its current swing should focus on how the need for security affects organizations and how the government selects professional services firms.
"The CEO has to be responsible not only for the strategy of the company but also for its overall security, and that security has to be integrated with the strategy so that it's an integral part of how you are going to move forward within the security restraints that are placed upon your business," explains Booz's Shrader.

Meanwhile, consultants who move from public to private sectors tend to maintain relationships with their former peers.  People like Bremer, now of Marsh Crisis Consulting, and KPMG's McCarthy view their private sector consulting as also a form of public service.
"I look at my ability to influence things in terms of being able to go back into the government and work with former colleagues on these solutions, because the government sure isn't going to fix all of the problems on their own," McCarthy says. While considering the offer to work for KPMG, McCarthy contacted several public sector mentors.
One of them, a former Air Force colonel who had made a similar transition, advised him to shift sectors. "He said that my work would be another extension of how the government does business — by having people like us come back to provide services on an outsourced basis. I've always looked at it like that, and I think I'm well positioned here to do a lot of good."  — Jack Sweeney contributed to this feature

Sidebar: Mr. Smith Goes to Washington

When it came time to find stories that underscore the growing trend toward private-public partnerships, few consultants could share as enlightening a tale as Ben Smith, a 33-year-old vice president with A.T. Kearney's Santa Clara, CA, office. After more than 10 years as a private sector consultant, Smith late last year went on loan to the U.S. Department of Transportation. He is currently helping the department plan and implement its new Transportation Security Administration. The agency, established last November by the Patriot Act, will eventually be responsible for all airport security. Consulting managing editor Mina Landriscina recently spoke with Smith about his recent career path — one that permits him to keep a foot in both the private and public worlds.

CM: What exactly will your role be within the Transportation Security Administration?
Smith: My title is Senior Advisor to the U.S. Secretary of Transportation for Planning and Strategy. My responsibility is to help build that agency. The initial effort was putting the leadership in place, structuring things, and coming up with the key areas of focus. Now, we are implementing and driving things forward.

CM: What has been your consulting experience so far?
Smith: When I first started at A.T. Kearney in 1994, I did a lot of transportation industry work with big airlines, air courier operations like FedEx, and other transportation companies like Union Pacific. I spent the majority of my career working with high-tech companies such as Hewlett-Packard, Lucent, and Intel, and doing mostly strategy and mergers and acquisitions work. In the last couple of years, I've been working on EDS's ventures and investments and helping to structure relationships between EDS and A.T. Kearney and merging companies.

CM: How is your experience with serving clients helping you now?
Smith: To start with, a couple of my former clients are here, including one particular individual with whom I had worked for years off and on as he went to different companies. He was part of the Department of Transportation 20 years ago under the Reagan administration. He is one of the guys who invited me to come here.

CM: So a client got you involved in this?
Smith: Yes, but as you know, Dick Cheney was on the board of EDS in the past, and there is a close relationship between EDS and the White House. It was really Dick Brown, our chairman, who stepped up and said, "Listen, I think this is really important for the country. I think this is something you need to do, and you're a member of the EDS family, and I'd really like you to consider stepping in and helping to drive something like this."

CM: How are the government and consulting cultures different?
Smith: It's a tough job working for the government. There are a number of constituents that you have to deal with. There is never one client, because, in the end, the American people are represented by multiple groups. And there is this large group of them on the Hill that represent us as well as the executive branch. It makes it very complicated in terms of getting a consensus and making something specific happen. Not to mention that the financial budgeting process is very different in the real world.

CM: What came as a surprise to you as far as the nature of the work goes?
Smith: I think the research resources that the United States government has at its fingertips are enormous. There are very few consulting projects where you can call Sandia or Los Alamos National Labs and have them look something up for you. The difficulty is finding them. It's just hard to find who knows what. The other thing I've learned is that it's not about great ideas, it's about getting things done — which in some ways is the way the private sector is. There are very few ideas for which, if you dig deep enough, you won't find someone in the government who hasn't already written a 50-page paper on it at some point in time. The trick is, how do you make it happen?

CM: What will you do when you return to A.T. Kearney?
Smith: By law, I won't work for the government to avoid conflicts of interest. We've spent a lot of time between the DOT and EDS making sure that we're doing things absolutely ethically and appropriate. One of the more difficult things is my level of restriction in talking to people who are my friends. I have to be very careful when I speak with anybody who is in the private sector and who is attempting to sell to the government. I have to take notes on the hour to make sure there are no conflicts of interest.