Elon Musk spells danger for Accenture, McKinsey and their rivals

It should be a management consultant’s dream. The organisation is immense. Bloat is a problem. And the new boss is eager to shake things up. President Donald Trump and his disrupter-in-chief, Elon Musk, have already begun hacking away at America’s federal bureaucracy. Mr Musk’s Department of Government Efficiency (DOGE) has set itself the target of cutting government spending by a colossal $2trn.

For an industry that helps organisations remake themselves, that seems like an opportunity like no other. Yet consulting firms, which have come to rely on the federal government for a growing share of fees, are looking on nervously. None of them appear to have a seat at Mr Musk’s table. They could instead be on the menu.

Consultants have a long history of cashing in on government projects. McKinsey, the world’s most prestigious strategy adviser, at least by its own estimation, helped Dwight Eisenhower establish the post of White House chief of staff in 1953 and designed NASA’s first organisational structure in 1958. By 1977 Jimmy Carter was grumbling that the federal bureaucracy was employing consulting firms “excessively, unnecessarily and improperly”. That year Booz Allen Hamilton, a consultancy, was paid $320,000 ($1.7m at today’s prices) by the Department of Agriculture to figure out how many chickens its inspectors should examine per minute.

Such a contract would look like chump change these days. The same firm received $9bn from the federal bureaucracy in the most recent fiscal year, according to government data. Add in the other top government consultancies—Accenture, BCG, Deloitte, EY, Guidehouse (formerly part of PwC), KPMG and McKinsey—and the figure exceeds $18bn, up from just $5bn a decade before (see charts).

The importance of America’s government for consulting revenue varies across these firms. Booz Allen Hamilton, which parted ways with its private-sector consulting business in 2008, is nearly entirely reliant on the public sector. McKinsey, whose work for the federal goverment slowed after its association with opioid manufacturers tarnished its reputation, makes less than 1% of its global revenue from federal contracts. Across the firms we examined, though, the federal government accounted for about 8% of total revenue last year. There is no bigger single client.

Some contracts are enormous. EY has made nearly $70m since 2020 supporting a reform plan at the Department of Housing and Urban Development. BCG has been allocated $380m since 2022 by the Defence Health Agency, which provides medical care to the armed forces, as part of an initiative called “Workforce 3.0”. Accenture has received $700m from the Department of Education since 2019 to build and manage a website, mobile app and virtual assistant for student aid.

The scale of spending partly reflects the magnitude of the mess. America’s federal government collects around 140bn forms a year, most of which are still paper-based. Agencies struggle to compete with the private sector for talented techies to help change that. The growth in government consulting over the past decade has been driven largely by digitisation efforts, notes Fiona Czerniawska of Source Global Research, which tracks the industry.

Could that offer some protection from Mr Musk’s woodchipper? The executive order establishing DOGE tasks it with modernising the government’s technology. Ron Ash, who oversees Accenture’s federal-government business, expects that agencies will be pressed to automate faster. Firms such as his will be ready to help.

The problem, however, is that doge and the consultants come from very different worlds. Take Mr Musk’s methods. He has been brutal and abrupt, and made little effort to engage those affected. Consulting firms have spent years trying to distance themselves from that type of approach, says Tom Rodenhauser of Kennedy Intelligence, another industry analyst. Protesters have gathered outside the showrooms of Tesla, Mr Musk’s carmaker, to protest against his cuts. Consultants will be loth to attract such attention.

For his part, Mr Musk may see consultants not as the solution, but part of the problem. Many of them are frustrated with how little they have been able to achieve in government compared with their private-sector efforts, says Max Stier, head of the Partnership for Public Service, a non-profit which works to improve government. Bureaucratic inertia and political meddling are partly to blame. But Mr Musk may conclude that, having tried for so long, consultants are not up to the task.

He may instead be drawn to options from his own sphere. Palantir, an analytics firm chaired by Peter Thiel, who worked with Mr Musk at PayPal, has gained a foothold in the Department of Defence and is spreading quickly across the federal government. Among other things, it helps organisations feed their data into artificial-intelligence (AI) tools. In the final quarter of 2024 its revenue from America’s government grew by 45% year on year. Its share price has been on a remarkable ride, more than doubling since Mr Trump’s election in November. Booz Allen Hamilton’s has fallen by a third.

Unlike most other software providers, Palantir embeds teams of engineers with its clients to help them make use of its technology. For now, it works on many projects alongside firms such as Accenture and Deloitte. But some also view it as a potential competitor to the big consultancies, particularly when it comes to AI. Mr Thiel has described conventional consulting as a “total racket”.

The Trump administration poses another conundrum for the consulting industry. Besides costs, officials also want to strip the government of wokery. Diversity, equity and inclusion (DEI) efforts are a particular target. An executive order issued last month bans federal contractors from operating any programmes “promoting DEI that violate any applicable federal anti-discrimination laws”. That has put the big consultancies, which have been vocal champions of dei, in an awkward spot.

Some have remained defiant. McKinsey has insisted that it will continue its pursuit of a “diverse meritocracy”. Yet it has little to lose. Other firms have quickly sought to placate the new administration. Accenture has informed staff it will be “sunsetting” its diversity goals. Deloitte’s American branch has told those working with the federal government to remove their pronouns from their email signatures. Such moves have ruffled employees, and may irk private-sector clients that have been preached to on the merits of DEI. Consulting bosses will have to decide what price they are willing to pay to keep their biggest client happy.

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