The Stimulus Effect

The analysis paid off.

Deloitte quickly sold a recovery-funds-related project for a large state, "and we have several other opportunities" in the pipeline, says Blume. She emphasizes that the stimulus package is generating opportunities for the largest consultancies as well as numerous niche players, such as those that specialize in carbon management, Smart Gird technology in the utility sector and certain types of healthcare technology.

"The stimulus package is going to create lots of consulting opportunities both in the private and public sector," agrees A.T Kearney CEO Paul Laudicina, who believes that is crucial for the consulting profession to understand how these funds and the crisis that crated the need for the stimulus fit in the context of an even larger change.

These opportunities will be in the public sector and the healthcare industry as well as several other sectors, including energy and utilities.

In terms of expertise, organizations that receive federal stimulus funds will need help with project management (Deloitte, for example, helped the state of Massachusetts set up its project management capabilities for stimulus funds) and governance/risk management ("accountability and transparency" represents a top priority in the administration of the stimulus funding) in addition to industry-specific business process and technology skills. The U.S. Department of Energy, for example, has already enlisted consulting firms to assist with carbon-management strategy.

That expertise will be needed quickly: the act calls for the funds to be used within the next 18 months to 36 months. The money will be used for new endeavors and existing federal and state programs.

Public Sector: Suddenly Flush
The sudden flow of money to federal and state governmental agencies represents a sudden change—and a new challenge.

A.T. Kearney and other firms with public sector capabilities recently have been "trying to provide our best counsel from successful work with the private sector enhancing operational performance oriented toward doing more with less," notes Laudicina. "And the government has been a ready and willing recipient of that kind of private sector-leavened experience. Now, the government will find itself with the curious problem of how to do more with more."

There has been a significant amount of media coverage focusing on the potential for waste and fraud in the dispersal of unprecedented amounts of money. It appears that the Administration is aware of this potential; the act required the creation of a Recovery Accountability and Transparency Board, which is lead by a chair appointed by the President and is responsible for "oversight of funds distributed under this law in order to prevent fraud, waste and abuse."
Blume reports that many of the initial questions her firm fielded from federal and state agencies related to governance structures—how they could ensure that the funds they received were managed and reported in a highly transparent fashion. Entities that receive funds must report on the progress of the money's use at the Recovery.gov site.

"States are asking consulting firms to come in and talk to them about how they put protocols in place that essentially mirror the protocols the federal government [agencies are] putting in place," says Blume.
Stimulus money will flow into state governments from the Department of Energy, Department of Education, Department of Transportation, Health & Human Services and other federal agencies.

Of the roughly $8.7 billion in stimulus funding Massachusetts is receiving, for example, a little more than 40 percent ($3.6 billion) will fund Medicaid, unemployment insurance, assistance for needy families, food stamps and related services. The rest will be divided among education (almost $2 billion); technology and research, which includes electronic medical records and broadband expansion ($1.3 billion); transportation ($809 million); clean energy and environment ($482 million); housing ($430 million); labor and workforce development ($90 million); and public safety and security ($71 million).

Healthcare Questions
Although healthcare—and more specifically, electronic medical records and efficiency improvements within the industry—represents a primary target for stimulus funds (at least $59 billion, according to the Act), questions remain as to how and where that money will be applied.

"For decades we have been looking to tackle healthcare efficiency. It's not a new problem—there have been multiple attempts," notes Rich Lesser, Boston Consulting Group senior partner and the leader of the firm's healthcare practice. "So, the question is: what will be different this time, not just in terms of money but in terms of an approach that will allow this effort to succeed?"

Mark Wietecha, chairman of Kurt Salmon Associates, thinks the stimulus could generate some healthcare-consulting opportunities (he mentions engagements with heavy IT components), but, he too, has questions. One relates to the cost of electronic medical records (EMR) deployment. Wietecha recently reviewed an estimate for implementing EMR in a 26-hospital system in California. The price tag was $1 billion, or about $40 million per hospital.

Another issue relates to the flow of money to clients. "How does the stimulus get to clients?" he asks. Healthcare clients include providers (doctors and hospitals), insurers and the pharmaceutical and medical-device manufactures.

"The funds have to find their way into one of those three pools," Wietecha says. "If I'm a consultant working on the hospital sector, how is this money actually making its way into a hospital and improving their bottom line or giving them the wherewithal to buy a consulting project? "That's where we're still doing some tracking. Unless we can connect the dots between $80 billion and a client, we can't really get a consultant mobilized."

Trickle-Down Effect
Other industries that in which stimulus spending is expected to boost consulting opportunities include energy/utilities and manufacturing. Some $43 billion of the stimulus package will be invested in energy. "Many utilities will require help in incorporating alternative energy sources into their business and generation portfolio," Laudicina notes.

Several billion dollars will be applied to Smart Grid projects, which require a blend of technology and back-office process expertise and horsepower that few utilities possess in-house. "There will be a lot of activity for smaller energy-related firms," Blume reports.

Manufacturing and consumer products companies will be directly affected by pending carbon-management legislation. "There will be money flowing to the states to help companies in these sectors work on their carbon admissions problems," Blume adds.

While Blume points out that certain niche consulting firms should benefit from the stimulus, larger firms are also well-positioned to thrive on several fronts.

"Consulting organizations that have rich and deep insights, broad oversight and strong foresight will be able to be of genuine help to their clients in the private and public sectors," Laudicina explains. "There will be very specific hands-on requirements for both the public and private sector as it relates to the administration of the $787 billion stimulus package. This is an unprecedented change in business conditions, and those [firms] that understand the long-term implications and can optimize short-term performance are going to be winners. And those that don't I think will be left out in the cold."

[SIDEBAR] Stimulus Can't Solve Everything
A.T. K's Laudicina says fundamental business transformation underway

A.T. Kearney CEO Paul Laudicina believes that the consulting opportunities that arise from the stimulus package will be "huge," but he also believes something even bigger is afoot in the world of business that can—and should—have a more important impact on the profession.

"To look at this as a surge in government would be too narrow a focus," he explains. "The important focus is to step back and look at how this crisis, which the stimulus is responding to in trying to deal with, represents a fundamental realignment and transformation of what Peter Drucker called the 'Theory of Business.' "

This transformation began well before the current economic crisis, and is driven by many of the factors Laudicina documents in his book World Out of Balance: Navigating Global Risks to Seize Competitive Advantage (McGraw-Hill, 2005): the rise of new consumer classes in the developing world; the emergence of global supply chains; continued productivity gains from technological advancements; the declining availability of natural resources; geopolitical unrest in the wake of 9/11; and a global regulatory reawakening (Laudicina describes this as an "era of re-regulation") following a painful series of private-sector lapses (stretching from Enron to the credit crisis).

Laudicina believe that the current business transformation, which has been underway since at least the start of the 21st century, "is at its heart as important as the big transformations in history," including the industrial revolution and the age of digitization.

The question for organizations is much bigger than, "How do we get our hands on some of that stimulus money?" Instead, Laudicina says companies should be asking "How do you sustain profitability in an era of decreased resources, increased population, and increased demand in a world with free, ready and open communications 24/7?"

Laudicina believes that companies will need to address:

• How is this change going to fundamentally transform my business paradigm?
• How will the new growth dynamics affect my business strategy?
• How will consumer demand, or reduced consumer demand, affect my business?

"As consultants, we have an awesome responsibility to help midwife this huge transition that the global economy is going through," Laudicina adds. "There is probably no profession that on its face should be positioned to play a more important role in this interaction between the private and public sector.

"In our view, full-service consulting firms that have that ability to understand the strategic context and then have that hands-on operational ability to deliver operational guidance that makes sense are really going to have tremendous opportunities. That's why we are so bullish about this environment."